Many thanks to Kevin Rutter for pinch hitting for last week's Read. Your author was unavoidably detained at my 20th college reunion, aka a mid-nineties Hot Tub Time Machine. An age before social media (thankfully, for all involved) and carb-phobia. The only thing that seems to survive is that, now and forever, Slices come plain only.
1. CBDC Discussed in DC
The World Bank, IMF and the Fed recently hosted an event called "Finance in Flux" to broadly discuss the impact of technology on finance. Chain's Adam Ludwin delivered a keynote address and shared his speech on the Internets here. As usual with Adam's articles, he provides a clear narrative and interesting context, especially for the evolution of distributed ledgers versus the recent financial backdrop and other technological developments:
The medium of money has only changed a few times in history, from precious metals to bearer currencies to now our ledger-based electronic systems. Bitcoin and blockchain represent a transition to a new medium. This transition is often referred to as distributed ledger technology, which is a reference to today’s centralized ledgers. But I find it more helpful to look back to bearer instruments, like banknotes, to appreciate what this new medium enables: a digital bearer instrument.
[SNIP] The goal of the blockchain industry is to collapse these steps into a single step, where payment is the settlement, just like with physical notes. This is what I mean by digital value transfer, which I sometimes like to call money-over-IP. Soon, the phrase “cross-border payment” will make about as much sense as “cross-border email.”
The main thrust of the talk was to introduce and potentially advance the topic of central bank digital currency (CBDC), something we often reference in this space. There is undeniably a lot of activity going on across both public and private sectors, and I expect that the discussion, especially around the second order benefits and (most importantly) risks, will only increase thru the end of 2016.
2. Blockchain Buzz. Bitcoin (price) Breakout?
Bloomberg published a short op-ed touting the promise of blockchain, although they perform an all-star hedge, claiming in a single paragraph that it can "change the world" or "fade into relative obscurity." Do we only get two choices? Meanwhile, the IMF chimes in with an article entitled The Internet of Trust, shared here not because it breaks much ground but to highlight that the IMF would bother publishing such a piece. The blockchain buzz continued with the second annual "Blockchain Illuminati" resort retreat on Necker Island, where attendees unironically discussed solving Peruvian land title issues while sitting poolside.
Meanwhile, Bitcoin price continues its strong run. As noted a few weeks back, a break of the $465 resistance opened up a test of 650/700 area...and here we are. Not a bad level to trade against. I am sure we will be in for lots of XBT cheerleading this week, so take this as a semi-regular reminder to not read into any of it, as (now and forever) story chases price.
3. Blockchain...what is it good for?
Back to the more pedestrian topic of what we can actually do with distributed ledgers. Dave Birch has an interesting 4 part series on digital identity and how this could be implemented with shared ledgers:
What if we could use shared ledger technology to build this record of financial services passports but but in such a way that no institution owned it, that it had no central system to go down, that it could resist intrusion or attempts at fraud from compromised members of the network, and that it could provide a platform for new products and services that we can’t really imagine at the moment? Personally, I think the shared ledger may well a plausible solution to this problem.
I especially liked his observation in Part 3: "while the idea of having sovereign control of your digital identity in some sort of blockchain is an appealing prospect if you are a 20-year-old computer science major MIT, I remain unconvinced that is a mass-market solution especially in developing countries." Indeed.
Meanwhile, ICYMI (I did...), Josh Stark of Ledger Labs provides a nice review of the different perceptions of smart contracts, breaking them into two overlapping yet unique definitions: smart contract code and smart legal contracts. He explains both in detail and also nails how Corda fits into the ledger ecosystem:
The different uses of the term illustrate a broader challenge in our industry. The interdisciplinary nature of blockchain technology, and “smart contracts” in particular, lead people to see the technology as primarily belonging to their own discipline, at the expense of the others.
Lawyers often look at smart contracts and see marginally improved legal agreements, without appreciating the fuller potential of blockchain-code to extend beyond law’s reach.
Developers, on the other hand, consider smart contracts and see the limitless possibilities of software, without appreciating the subtleties and commercial realities reflected in traditional legal agreements.
As with any interdisciplinary field, both must learn from the other.