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The Weekend Read: Feb 21

Another stark reminder of a breakdown in governance...

Another stark reminder of a breakdown in governance...

1. Bitcoin Bun Fight

The he-said, he-said battle for Bitcoin's soul continues. Earlier this week, the research group IC3 released a paper describing the challenge faced by Bitcoin to scale in any meaningful way, with any block size increase being seen as "only a first increment" to a solution. This Tech Review article gives a good overview of the group's opinion that block size changes are just the start: “The current debate is missing the forest for the trees,” says Juels. “We have to think in terms of a fundamental redesign if we’re going to see robust scaling in Bitcoin.”

BitTorrent inventor Bram Cohen has an excellent post on Quora that succinctly covers the challenges, opportunity and harsh reality for Bitcoin today. I will skip summarizing and urge you to read it in full, but wanted to highlight this passage, emphasis added:

Bitcoin as a provider of real service doesn't seem to be going anywhere. Mass consumer adoption isn't happening, and there isn't much reason for it to. [snip] If you don't have either of those problems [blacklisted transactions or frozen accounts] Bitcoin is more expensive and inconvenient than regular banking is, and far more expensive and inconvenient than regular banking could be if it starts supporting smart transactions on public ledgers without bothering with the baggage of mining.

Luckily though, Bitcoin Inc finally came to consensus on a near term roadmap at the latest Scaling Bitcoin meeting in Hong Kong, which kinda sorta agrees to think about a hard fork in 2017 if, maybe, we will see...The news was met with a price bump in BTC but also skepticism from within Blockstream, as one of their own speaks out against the accord, as well as a rebuttal by Coinbase and Xapo. Looks like Punxsutawney Satoshi saw his shadow after all and we are in for more interminable weeks of this debate.

2. Linux Foundation

The recently announced Linux Foundation Open Ledger Project has been rechristened to the Hyperledger Project. The above trials and tribulations around implicit governance within the Bitcoin community serve as a sobering reminder of the challenge to successfully establish and nurture a multi-stakeholder open source codebase. You can visit the project's github repo here to review the four initial contributions. R3 will be participating in this hard work, as both members of the project's board and technical steering committee. As DTCC's chief technical architect Rob Palatnik says in this Wired article

If the financial industry is to get ahead of the tech curve, he explains, it must do so in a considered and collaborative way. Given the very nature of blockchain technology, this collaborative approach is the right idea. If a company builds a blockchain-like system inside its own organization, that’s only so useful. The real power of the blockchain is as a distributed ledger that’s outside of the control of any one organization—a ledger that keeps, as Palatnick calls it, “a single indisputable version of the truth.”

3. Banks and Blockchain (cont)

Bloomberg has another heartwarming and uplifting piece about the implosion of banks, this time focused on European banks. No pull quotes from the article will be posted here as this is a family friendly blog...This macro backdrop will only heighten the focus for banks to find ways to cut costs and reduce the burden of regulatory compliance.

Capco and Finextra released an interesting report on how this feeds into the push towards "utility-based shared service models." The interesting angle for distributed ledgers in the utility model is that the technology has the promise to address what Capco outlines as the key obstacles to utility uptake: standardization hurdles, data security and (most importantly in my eyes) the concern of losing fair access or fair control over the shared utility. This last point is very important, as DLT can balance the political control within the utility by distributing it across the participants (versus the old model of anointing a central operator).

Yet cost cutting is one side of the equation. George Samman reviews his initial thought on the more hopeful angle of new revenue generation in his recent blog post. His view is that it all comes back to smart contracts, as he references to R3's Kathleen Breitman's inaugural POV post The Problem with "The Problem with Oracles":

There have been many estimates about the potential cost savings from "blockchain" and/or distributed ledger technology in capital markets. Many of these figures are driven by the assumption that ledger integration will automate or obviate the need for many back office processes. At present, the use of smart contract-enabled distributed ledgers are the best way to introduce this automation, making them an attractive area of focus for financial institutions.