I just got back from a very full and rewarding week in our London office, highlighted by our third Members' Conference on Tuesday. Many thanks to all the participants, as we had 44 institutions represented, including talks by 11 different members and topped off by two live demos. Perhaps most impressive was the energy carried over from the Monday night cocktails all the way thru to the end of Tuesday's session...
One of the day's presenters and R3 colleague Ian Grigg filed this short post on Corda and our introductory white paper. The post reviews two big considerations/requirements that drove the Corda design work: privacy (you need it!) and consensus:
The reason for [proof-of-work] was that we cannot trust the sybil element of an open access system - necessary to ensure the fabled censorship resistance. But in the institutional market, they know how to trust each other. They've been doing that for 100s of years. Literally - with letters of credit, trade finance, introductions, short term loans and interconnects, relationships.
[SNIP] Without proof of work, and without the public blockchain, we are really talking about a completely different animal to Bitcoin. And that's what Corda is - a redesign from the base requirements of the institutions.
A good companion read is the recent public disclosure of the GS patent filing for FX on a blockchain, as the main themes are extremely consistent w Corda's core requirement set:
Essentially, Goldman wants to merge the benefits of blockchain technology—speed and efficiency—with other technologies that offer privacy, security, and compliance with regulatory guidelines. For example, Goldman’s version of the blockchain would allow for private transactions only visible on a need-to-know basis; permit regulators to access the database; and adhere to anti-money laundering regulation and Know Your Customer laws, which require that banks confirm the identity of their customers.
And a sartorial shout out to our Stafford Lowe for keeping it real Bermuda style (and boos to the staff photographer for not capturing the full glory of the Bermuda shorts!) in this feature on Bermuda Reinsurers + blockchains.
Banks Bruised and Battered
McKinsey released a report on the state of banking and, well, it aint pretty:
Firing people won’t be enough to save the world’s biggest banks from technological and regulatory changes that have reshaped the industry -- whole businesses must go, according to McKinsey & Co. Almost every bank will have to quash aspirations to be all things to all customers so that they can eliminate fixed costs, the consulting company said Wednesday in a report titled “Time for Tough Choices and Bold Actions.” Only three to five global full-service banks will survive, McKinsey said.
Meanwhile, the FT stood for (F)in(T)ech this week as there was a barrage of articles, but effectively helped the FT cover all bases by both deflating and inflating the fintech bubble: Cyber attacks raise questions about blockchain security and Banks find blockchain hard to put into practice and UK regulators are the most fintech friendly and Fintech start-ups put banks under pressure.
The Bank of England released their Consultation Paper on a potential new RTGS. This includes mention of Central Bank Digital Currency (CBDC) on page 18 and distributed ledgers on page 42. Lazy pull quotes below!
The Bank does not propose to extend direct participation in the new RTGS service to non-financial corporates or households in the United Kingdom. This is for two reasons: (a) Such a change in access would raise fundamental questions about the nature of banking, the shape of the financial system and the role of the central bank that need to be researched over a longer timeframe. (b) Attempting to accommodate a dramatic extension of access would create very material technological and security challenges for RTGS that would have significant implications for the cost and timeframe for renewing the system and would fundamentally alter the resilience and operational availability requirements of the service.
[SNIP] The research conducted so far in the Bank and elsewhere shows that asset transfer and gross settlement can successfully operate on a distributed ledger, and demonstrates many of the features of network resilience in a small-scale application. In its current state, however, this work has also highlighted that the technology is not sufficiently mature to provide the exceptionally high levels of robustness required for RTGS settlement. Further work is required to address privacy and system scalability in particular, and these and other topics suggested by this initial work will drive the Bank’s future research programme on this technology.
A bit of cold water, but one that is balanced by continued research and engagement in the space. Speaking of engagement, Hong Kong joins the party of fintech accelerators supported and hosted by government authorities, much like the FCA in England and MAS in Singapore. And ISO has approved the proposal by Standards Australia to lead an international tech committee "to build a uniform approach to the technology."
Congrats to our friends at Ripple for closing their latest round of funding and for the expansion of their partner financial institutions:
“Our mission is to make cross-border payments truly efficient for banks and their customers, and in doing so, lay the foundation for an Internet of Value where the world moves money as easily as information,” said Ripple CEO & co-founder Chris Larsen, “We’re thrilled to have these world-class investors joining forces with us to help make this vision a reality.”
And ICYMI, Hyperledger's Executive Director Brian Behlendorf published an introduction to the new vision of the Hyperledger Project as An “Umbrella” for Open Source Blockchain & Smart Contract Technologies:
Perhaps most importantly, we can directly address what many have observed as a major challenge with the existing open source blockchain efforts – tremendous levels of tribalism amongst developers. While invigorating, it can also make sharing code between efforts, or talking about common challenges and how to meet them, notoriously difficult. This is true even when the payoff would be less duplicated code and more eyes looking for security holes and other issues. Multiply that rivalry with the effects of holding fungible currency whose value can be tied directly to the software in question, or open source project brands tightly associated with commercial brands in which developers own equity, and incompatible copyright license paradigms, and working together can be nearly impossible.
At Hyperledger we believe we can provide an answer to this. Let’s bring these different implementation efforts within the same “home”, with a consistent approach to intellectual property, community collaboration standards, overall branding (“Hyperledger ____”) and an encouragement to either work together or usefully differentiate. If we do this, it will remove barriers to collaboration, encourage developers to find opportunities to work on common code, and address the potential for confusion and wasted duplication of efforts without requiring a top-down single architecture or personality to dominate.