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blockchain

The Weekend Read: Oct 15

R3 Meme Altar with a star turn

R3 Meme Altar with a star turn

The Weekend Read Watch

We have a fairly light news cycle this week (as the industry PR machine takes a breather in between Sibos and Money 20/20), but Techcrunch has helpfully provided a six-part web doc on Bitcoin and Blockchain. The series is based upon Nathaniel Popper's recent book Digital Gold and it walks thru the origins and challenges of Bitcoin, the rise of Ethereum and ends with a chapter featuring R3's Charley "Hollywood" Cooper (your author plays the uncredited role of "offscreen voice trying to crack up Charley Cooper"). It is a really well done series and will jump to the top of my list of "links to send to my Dad to explain what I do for a living."

Speaking of Popper, he has a follow up article to last week's speech by Fed Governor Brainard entitled Central Banks Consider Bitcoin’s Technology, if Not Bitcoin. The article echoes much of what the final Techcrunch episode above discusses, about how the promise of blockchain tech needs to coexist with the realities of the current and future regulatory system: 

“There are so many things going on that it is hard to keep track of all the contacts,” said Mr. Berndsen, the head of market infrastructure at the Dutch central bank. “I hear from other central bank colleagues that it is the same everywhere.”
[SNIP] Ms. Wilkins said the Bank of Canada was interested in the technology as a way to build a single, shared record of all the transactions among several institutions. That could leave much less money sitting idle while banks reconcile their different ledgers, as now happens.
It would also create a standardized way of recording transactions that would allow all the players in the system to communicate more seamlessly.
“There is currently a whole industry set up to reconcile and audit all these separate ledgers, and you can’t easily connect them,” she said. “This comprehensive shared data source could be a real benefit.”

This sentiment is also picked up by Currenex's David Newns in this Global Custodian article (thanks for the shout out David!):

“There is a reason banks have the regulatory frameworks around them and in the long run nobody can be immune from those even if you are a technology company and not a bank,” said Newns. “Just because you’re not acting as a bank today, it doesn’t mean that you cannot avoid acting like a bank and it may be less comfortable to start doing so tomorrow. There remains a question over how Wall Street and FinTech get along but FinTechs should be aware that if you want to play in that pool you have to play by the rules.”
“Looking at R3 they have the right mindset and character to bring both of these communities together. The industry needs to think about how FinTechs are going to interact with legacy systems and the cultural divide is being addressed by larger industry initiatives.”

Blockchain Hype

Former UBS CIO Oliver Bussman sprinkles a bit of cold water on blockchain hype with FT article entitled Banks will not adopt blockchain fast (note to FT editors: "blockchain fast"? Aren't the British meant to be more gooder at grammar and usage?):

Over the next 12 to 24 months, I expect we will see significant, if still limited, moves to blockchain-based platforms in areas like cross-border payments or trade finance. But financial services as a whole is much broader than just these isolated use cases. I therefore expect widespread blockchain implementation in other industries first — for example supply chain management, healthcare, real estate, or e-governance.
No doubt financial services will follow; when it comes to blockchain, I do not think you can escape destiny. But the dream of a fully blockchain-enabled financial system will take some time to fulfil.

The Streetwise Professor eschews a sprinkle of cold water for a fire hose of skepticism in this post on the potentially facile arguments and hidden dangers within completely decentralized clearing. He does a very nice job of highlighting the many roles of a CCP above and beyond the blocking and tackling of moving margin, such as mutualizing and managing default and liquidity risk. He also offers this sobering take of smart contracts:

When I think of these “smart contracts” one image that comes to mind is the magic broomsticks in The Sorcerer’s Apprentice. They do EXACTLY what they are commanded to do by the apprentice (coder?): they tote water, and end up toting so much water that a flood ensues. There is no feedback mechanism to get them to stop when the water gets too high. Again, perhaps it is possible to create really, really smart contracts that embed such feedback mechanisms.
But then one has to consider the potential interactions among a dense network of such really, really smart contracts. How do the feedbacks feed back on one another? Simple agent models show that agents operating subject to pre-programmed rules can generate complex, emergent orders when they interact. Sometimes these orders can be quite efficient. Sometimes they can crash and collapse.
In sum, the proposal for “distributed clearing to disintermediate CCPs” illustrates some of the defects of the blockchain movement. It overhypes what it does. It claims to be something new, when really it is a somewhat new way of doing something quite common. It does not necessarily perform these familiar functions better. It does not consider the systemic implications of what it does.

For an antidote to this skepticism, please read Massimo Morini's excellent paper from earlier this year: From “Blockchain hype” to a real business case for Financial Markets

R3 Around the World

Forum Blockchain in Sao Paulo rocking a blue hue

Forum Blockchain in Sao Paulo rocking a blue hue

To wrap up this week, we are happy to share two "firsts" for R3 and our membership. R3's Rob Sagurton shared this field report from Sao Paulo:

We are often get the question of, "Are historical bank competitors really collaborating positively within R3?" Case in point was the Blockchain Forum in Sao Paulo this week co-sponsored by Itau and Bradesco (together with R3). We were extremely proud to be invited by these two important Bank Members to co-sponsor the first full day Blockchain conference in Latin American specifically focused on DLT for regulated financial markets. The feedback was overwhelmingly positive on both the content and "energy" from the over 125 senior financial executives and regulators in attendance from Brazil and Latin America. Among the esteemed presenters were the Central Bank of Brazil and their Securities and Exchange Commission - CVM, along with R3 Members Emmanuel Aidoo (Credit Suisse) and Carlos Kuchkovsky (BBVA), to whom we owe special gratitude for making the trip to Brazil to provide their valuable global perspective.

And finally, we are very happy to announce our first Russian member Qiwi, the leading Russian payments service provider. Welcome aboard!

The Weekend Read: Back to School Edition 2016

Summer's (unofficially) over, Hermine aint here, and it is time to get back to school.

1. Blockchain Hype

The Bloomberg article Maybe Blockchain Really Does Have Magical Powers produced a fair bit of chatter in the office this week. Some couldn't get past the snark, but your author respects good snark when he see it. The article calls into question the hyperbole of the WEF report released this summer and also highlights our recent Corda whitepaper:

What's new is that each transaction comes with attached code (a “smart contract”) containing standardized rules about how to decide whether it is valid. The parties download and independently run the code to verify the transaction. This is cheaper and faster than traditional reconciliation, because it eliminates the need for a bunch of back-office employees at each separate institution to reconcile transactions using their own unique sets of rules and data fields.
[SNIP] The only thing previously stopping the standardization of reconciliation processes was the unwillingness of financial institutions to collaborate. Financial institutions spend $65-80 billion on back office reconciliation every year. The employees working in back offices probably offered lots of excellent reasons why their roles couldn’t simply be standardized away.
[SNIP] Standardization of rules and data fields is a good idea that could save billions of dollars in back-office reconciliation costs. Maybe one of the biggest effects of all the blockchain hype will be getting a bunch of security-conscious egoists to come to an agreement that benefits them all. That would truly be magical.

More in don't believe the hype: Adam Ludwin of Chain tries to slow the roll of "put a blockchain on it" enthusiasts:

It’s strange to hear chief executives pour cold water on technologies that are at the heart of their own companies. Yet that’s what Adam Ludwin, who is the CEO of blockchain company Chain, did when I met with him this month. The hype over blockchain—a new form of record keeping that relies on a shared digital ledger—is causing people to lose sight over what the technology is meant to do, according to Ludwin. “Blockchain is a database for money,” he said. “I don’t understand why people talk about it in terms of health records and home deeds and voting systems.”

Couple these articles with the recent Gartner Hype Cycle warning, and it shows how important delivery becomes as we head toward 2017.

2. Catching Up

A few updates and announcements to share:

Visa eyes new link in blockchain payments

The project is designed to cut costs, speed up settlement time and reduce credit risk in the market for moving money between banks both domestically and across borders. It could represent a challenge to the Swift interbank payment system, the main messaging system used by banks to handle large money transfers. Swift has recognised the potential threat and has itself been examining blockchain’s potential.

Swift warns banks about successful raids by hackers

Swift — the Society for Worldwide Interbank Financial Telecommunication — warned its members that while there had been fewer publicly reported cases of banks being attacked, hackers were still on the hunt for weaknesses in their security systems. “We have seen new cases of input fraud since we last wrote to update you on these issues,” Swift said in its letter. “The attackers have followed a broadly similar modus operandi, but have specifically tailored every attack to each individual target.”

Smart Contracts Firm Taps Wall Street Vet as President, Chairman

Symbiont, a developer of software for self-executing smart contracts, has hired Wall Street veteran Caitlin Long as president and chairman.

IBM Bridges Blockchain, AI With New Business Unit

IBM is reorganizing its internal blockchain team into a business unit that encompasses its artificial intelligence and cloud computing efforts, called 'Industry Platforms.' In addition to the work on blockchain tech, the business unit will lead IBM's efforts to bridge its financial services work with its Watson artificial intelligence initiative.

Key themes from the R3 summit on smart contract templates

A nice summary of our recent summit (rumor has it that there may be a follow on summit in the coming months...)

Eleven Reasons To Be Excited About The Future of Technology

Not exactly an announcement, but this is a really cool summary of all the things to be optimistic about in technology. When you get bored of being excited and feel like trying on some dread and paranoia, check out this review: Homo Deus by Yuval Noah Harari review – how data will destroy human freedom (!)

3. An R3 Welcome

Two big shout outs this week. A warm R3 welcome to China Merchants Bank and to Met Life!

The Case for Fool Proof Databases: A Concession

Some people in the blockchain/distributed ledger space have tried to advertise blockchains as a “better database” solution that should assume a role like SQL databases within an enterprise. I often try to explain to people that blockchains/distributed ledgers are different than a database. Though they are superficially similar, they have different use cases and tradeoffs.  You should probably use a blockchain if you need consensus or have some sort of tension among the actors contributing to the distributed ledger. That said, the more familiar I become with the way large enterprises work, the more I see a role for a “fool proof” database, which I suspect is what people building internal blockchains are trying to sell

Broadly construed, blockchains can do a lot to ensure the integrity of a ledger by creating conditions for the network to evaluate each claim submitted to it. People trust the ledger because they trust the process that leads to the validation of the claims. Though one might assume that the same type of thought would go into the important databases that drive Fortune 500 companies, I’ve encountered a startling number of bad architectures leading to costly mishaps. Perhaps the most appalling anecdote of poor database usage came from the Sakurity blog when, last year, Egor Homakov discovered a way to create unlimited balances on Starbucks gift cards by exploiting a race condition vulnerability: http://sakurity.com/blog/2015/05/21/starbucks.html. Race conditions can occur when a program has to deal with many operations executing concurrently.

In the Starbucks case, Homakov tried to merge values from one gift card to another online. The code on the Starbucks site checks the balance of a gift card and then transfers it. However, in between the checking and the transferring, the money is transferred elsewhere. If the transfer does not happen atomically, and two concurrent transactions are processed, credit can be “created” and issued to the cards rather than transferred between them.

To explain the problem, say there are two transactions, tx1 and tx2. If the program executes in this order, you have a problem:

tx1: check if A has a balance > 10: yes

tx2: check if A has a balance > 10: yes

tx1: Ok deduct 10 from A! Balance is now 0

tx2: Ok deduct 10 from A! Balance is now -10

tx1: Ok credit B with 10!

tx2: Ok credit C with 10!

Indeed, after six tries (there is an element of randomness to race conditions) Homakov was able to combine values (rather than transferring them from one to another), turning two of his $5 gift cards into $15 gift cards.

The tragedy of the Starbucks episode is that databases were designed precisely to solve issues like these. One of the first things taught in classes on databases is "transactions" and how to deal with the very scenario laid out above. To combat these scenarios, most databases dealing with financial transactions exhibit a property called ACID: atomicity, consistency, isolation and durability. In concert, these features ensure that there is little room for an inconsistent state that would render the types of flaws seen in the Starbucks case.

And, so, I think there has been a bit of confusion as to the benefits of blockchains in place of a traditional database. I think many people conflate blockchains with one of their features: correctness by construction. When a database has correctness by construction, a lot of low level operations are encapsulated into high level operations which are harder to get wrong. Blockchains aren’t designed to serve as conventional database alternatives: their structure is complex compared to what a database might need to succeed. However, a blockchain does prevent the types of basic errors seen by executives at Starbucks by employing a robust method for evaluating and ordering transactions.

A blockchain may not be an appropriate substitute for SQL databases, but consider that it ensures better transaction construction than some multi-billion dollar companies have been able to buy. Though the case for blockchains as a SQL database alternative is very weak, there is a strong argument for a better type of databases that harbor correctness by construction.

The Weekend Read: July 10

Hey Bae Readers, welcome to The Weekend Read. Oh sorry, I was using my "Intern Recruitment" template from Microsoft...if you haven't seen their recruitment strategy for "Interapalooza" you should check it out. Its so turnt that its on fleek.

1. Blockchain Speed Round

Due to the late filing of this post, let's go for a quick run thru the links:

What’s in a Name? — The Disambiguation of Smart Contracts by Anthony Macey. Nice rundown of the challenges bridging the legal prose and code worlds. I especially liked his 5 point list of what a "contract" could mean.

How Distributed Ledgers Impact Post-Trade in a Dodd-Frank World:

While two parties can benefit from a shared ledger and a single smart contract, the true benefit of these technologies will not be realized until they are widely adopted. For example, regulator access into a permissioned distributed ledger will be most helpful when the regulator can view an entire market or at least a broad cross-section of that market, seeing the same data fields for each transaction.

5 Things We Learned From Analysing the Location of 950+ Blockchain Startups. Mainly included so I could include this pic. I find it oddly soothing, like an Eric Carle illustration. Maybe "The Hungry Little Blockchain"

Bitcoin Halvening happened this week. Much like the new fave expressions of "The Youngs," I have no idea how to pronounce this word. Set your Bitcoin Clocks for the next halvening party at the moontower on July 6th, 2020...

Shout out to Richard Brown as a co-author with Dave Birch and Salome Parulava on their "Towards Ambient Accounting" paper:

And finally, a nice article on R3 in Fortune this week that gives some context to the design choices of Corda to be more applicable to the realities of market dynamics. It also provides the scoop that our NY office meeting rooms are indeed (for now) named after Top Gun characters.

The Weekend Read: June 12

WARNING: do not try at home. Objects in picture may not be to scale.

WARNING: do not try at home. Objects in picture may not be to scale.

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.

Quick test of target $650/700 level. To the moon...or back to retest breakout?

Quick test of target $650/700 level. To the moon...or back to retest breakout?

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.

The Memorial Day Read: May 30

1. Goldman Sachs Profiles in Innovation Report

Goldman Sachs Investment Research joins the recently steady stream of bank blockchain pieces with a very cogent overview of the potential of blockchain tech, subtitled Putting Theory into Practice. The report goes into detail via seven case studies and does a very good job in walking thru the business case and risks in each. The money quote:

A key takeaway across these applications is that blockchain is not just about disintermediating the middleman. In some cases, blockchain could disrupt markets and existing participants, while in others, it promises to help drive cost savings by reducing labor-intensive processes and eliminating duplicate effort. And in some instances, it can create new markets by exposing previously untapped sources of supply. The common thread is that by enabling a fundamentally new type of database technology that can be distributed across organizations, blockchain creates the foundation for solving problems or seizing opportunities that have eluded current systems.

 

2. Bitcoin, why can't you be more like your little brother Ethereum?

Fred Ersham from Coinbase, fresh off the listing of Ether on their GDAX exchange, has a very thoughtful post on how he has come to appreciate the growing Ethereum ecosystem, especially in comparison to both Bitcoin the protocol and community:

What is very real, though, is the possibility that Ethereum blows past Bitcoin entirely. There is nothing that Bitcoin can do which Ethereum can’t. While Ethereum is less battle tested, it is moving faster, has better leadership, and has more developer mindshare. First mover advantage is challenging to overcome, but at current pace, it’s conceivable.
Test of $650/700?

Test of $650/700?

But...Bitcoin price just broke out (on low volume) to new year highs and past previous strong resistance around $465 (see chart), while Ether may be tracing out an interim double top.

But...large mining company KnCMiner declares bankruptcy just as prices shoot past their supposed break even point. Very odd.

But...our old bailiwick TheDAO comes under increased scrutiny, with some calling for a DAO moratorium.

Stay tuned...

3. The Race to Innovate...Ahead of the Ongoing Innovation of Fraud

SWIFT remains in the news, with more reports of attempted hacks surfacing. They even get the badge of honor to have their attacks linked to the same (potentially North Korean) group behind the Sony hacks! We may be coming to the point where we have a version of Godwin's Law for hacks...eventually all will lead back to (alleged) North Korean hackers. In the meantime, banks are stepping up the pressure for SWIFT to adopt new safeguards.

Banks are also looking to attack fraud in the guise of honest trade finance. Bloomberg details the drive behind and some of the detail of the recent PoC conducted in Singapore, with Ripple, DBS, SCB and the Infocomm Development Authority of Singapore. The application of distributed ledger tech can go a long way in preventing the "double spending" of invoices.

4. R3 In The News

Our own Tim Grant had the honor to present at the President’s Council of Advisors on Science and Technology recently, and his talk (skip to minute 32) and others is posted here. Unfortunately he divulges a bit too much of our "pixie dust and unicorns" business strategy. Oh well, back to the drawing board.

And finally, we are proud to welcome Ping An, our first Chinese institution, and our first insurance company, to the R3 family. Welcome aboard!

The Weekend Read: April 17

Greetings to an abbreviated Read, as your author has contracted a severe case of Spring Fever. I will be attending Monday's Barclays Accelerator Demo Day in London, so if you are there please find me in the crowd (or follow the action here).

I had the pleasure to attend the IIF's Blockchain Roundtable this past Thursday. One of the views presented was from U.S. Federal Reserve Board of Governors member Lael Brainard. You can find a transcript of her speech here as well as a CoinDesk summary here:

The resulting Internet of Value holds out the promise of addressing important frictions and reducing intermediation steps in the clearing and settlement process. For example, in cross-border payments, faster processing and reduced costs relative to current correspondent banking are cited as specific potential benefits. Reducing intermediation steps in cross-border payments may help reduce costs and counterparty risks and may additionally improve financial transparency.
In securities clearing and settlement, the potential shift to one master record shared among participants has some appeal. Having one immutable record may have the potential to reduce or even eliminate the need for reconciliation by avoiding duplicative records that have different details related to a transaction that is being cleared and settled. This also can lead to greater transparency, reduced costs, and faster securities settlement. Likewise, digital ledgers may improve collateral management by improving the tracking of ownership and transactions.
For derivatives, there is interest in the potential for digital ledger protocols to enable self-execution and possibly self-enforcement of contractual clauses, in the context of “smart contracts.”
As we engage with industry and stakeholders to assess the potential applications of digital ledger and related technologies in the payment, clearing, and settlement arena, we will be guided by the principles of efficiency, safety and integrity, and financial stability.

Interoperability was a constant theme at the roundtable and in the above comments:

[D]etermining exactly how the different distributed ledger technologies interoperate with each other, and legacy systems, will be critical. New and highly fragmented “shared systems” may create unintended consequences even as they aim to address problems created by today’s siloed operations. Since distributed ledgers often involve shared databases, it will also be important to effectively manage access rights as information flows back and forth through shared systems. There may well be a tradeoff between the privacy of trading partners and competitors on the one hand, and the ability to leverage shared transactions records for faster and cheaper settlement on the other hand.

Couple this with the proposal this week by Standards Australia to ISO to start work on tech and interop standards.

The speech above also touched on multilateral and bilateral clearing via distributed ledger. Colin Platt of DPactum weighed in with a post this week to describe how things would, and most likely wouldn't, change as the technology evolves:

Smart contracts could embed the logic of what was to be paid and under which circumstances, and more blockchain transactions could facilitate the settlement and highlight whether that had been paid or not.  A trusted third party would still be beneficial in calculating how much money needs to be paid to reduce credit risks.  Less likely to go would be the more nuanced defaulting role, a central counterparty plays a strong role in ensuring that defaults happen in an orderly manner which causes the least detriment to the market. Also unlikely to be wrapped into a heartless smart contract is the management of systemic risks, not only do these require some amount of discretion but they are largely based on scenarios of events that may or may not play out in the future. In time other technologies may improve our ability to anticipate these scenarios and mitigate their potential impact, but they will almost definitely sit within some centralised structure, even if that structure does speak to a blockchain.

And finally, Bruce Pon of Ascribe wrote about the age of decentralized computing in this LSE Business Review post. The article raises some interesting concepts, especially as a riff on distributed systems being phase two to the internet's phase one, and the LAMP stack comparisons to today's emerging architectures, yet in the end it seems to be a not-so-indirect plug for BigchainDB. But then again, if you don't talk your own book...who will?

 

The Weekend Read: April 9

1. Introducing

Many thanks to The Swanny for filling in for me last week. Its great to be back, as I have the pleasure to recap two pretty awesome announcements. On Tuesday, our CTO Richard Brown returned to the blogging world to announce Corda, a distributed ledger designed for, and with, financial institutions:

Corda is a distributed ledger platform designed from the ground up to record, manage and synchronise financial agreements between regulated financial institutions. It is heavily inspired by and captures the benefits of blockchain systems, without the design choices that make blockchains inappropriate for many banking scenarios.

Just reading a few pull quotes wont do the post justice, so I urge you to read it in full. I particularly liked this passage on Bitcoin as an odd architectural choice for financial institutions:

But what is often missed is that the cleverest part of Bitcoin isn’t actually its architecture; I think the cleverest part was to articulate the business problem.  We don’t tend to think of Bitcoin as being the solution to a “business problem” but it can perhaps be thought of as a wonderfully neat solution to the problem of: “how do I create a system where nobody can stop me spending my own money?”
[Yet] Satoshi Nakamoto didn’t wake up one morning wanting to “apply Blockchain to finance”. Blockchain was the tool that was invented to solve a real problem. So we have a conundrum, right?  If that’s the case, then what on earth is the argument that says blockchain has any relevance at all to banking?!
Indeed, last time I checked, banks have the inverse of my Bitcoin problem statement!

Matt Leising at Bloomberg also has a great overview of the Corda approach in this article.

The announcement was followed up with Richard's participation in Money 2020 Europe, where his R3 panel was SRO.

On Monday, Microsoft CEO Satya Nadella used the first ever Envision event to announce an R3 - Microsoft partnership (see other coverage: WSJ, Bloomberg). We have been working closely with the Microsoft Azure team since the start of the year. The combo of Microsoft technology horsepower with the undeterred energy of the Azure team has been a massive help in launching our Global Collaborative Lab (thanks Marley!). Microsoft's EVP of Business Development, Peggy Johnson, also commented on the partnership:

Navigating the changing digital landscape can be daunting. Success demands a trusted and collaborative network of partners – particularly in a highly regulated industry with billions of dollars and sensitive financial data at play. We’re proud that organizations like R3 trust Microsoft as a partner to build the financial technology systems of the future. With next–generation technologies like blockchain poised to disrupt the way we do business in nearly every industry, we’re committed to continue earning the trust of business leaders and their customers around the world.
Change is never easy, but with partnerships built on trust, together we can change the idea of “disruption” from a threat to an opportunity – one that will empower us all to achieve more.

2. Blockchain Announcements

Our friends at Intel announced late this week the open sourcing of their blockchain approach, dubbed Sawtooth Lake, which was also one of the five protocols tested across 40 banks in our February Lab project. Intel has provided comprehensive documentation here if folks want to dive in. Their aim is to provide "a highly modular platform for building, deploying and running distributed ledgers," with an emphasis on unlocking the power of a Trusted Execution Environment.

IBM announced this week that they are in the midst of getting their Watson AI's chocolate into some blockchain peanut butter via an early prototyping exercise. If they manage to get some unstructured Big Data in there they will have hit the rather elusive Disruption Trifecta. And another win for the Axoni/TradeBlock team with the announcement of their CDS trial with Markit, DTCC and 4 banks.

3. Fintech etc.

The NY Times Dealbook posted a special section on Fintech this week, called "Fintech's Power Grab." It highlights that the sudden focus on all things fintech by the very institutions targeted as the 'disruptees' may signal a turning point, with the upstarts being consumed by the big guys. It also has some cool profiles and stories, including one on Chris Larsen at Ripple.

And in a different "tradition unlike any other" yet a tradition nonetheless, the long awaited decentralized marketplace OpenBazaar went live earlier this week...and within hours started to build up quite the inventory.

The Weekend Read: Mar 20

1. The Economist as un-Hype Man

The Economist is back on the blockchain beat with a pair of short articles. The first is a pseudo-cold shower for the enthusiasm within financial services to "put a blockchain on it," lead by a quote from the Blockchain Beard himself. The article ends on a more hopeful note:

Yet it would be wrong to conclude that the blockchain is no more than a fad. It is merely moving through the same hype cycle as other next-big-things have done before it: inflated expectations are followed by disillusionment before a technology eventually finds its place. Although it will take a while for distributed ledgers to rule the world, they are an idea, to paraphrase Victor Hugo, that will be hard to resist.

The second outlines the nascent love affair between central bankers and distributed ledgers: our oft-cited Regtech theme which we will discuss further down the page. The article does end with a nice crypto-libertarian head exploder: "The technology first developed to free money from the grip of central bankers may soon be used to tighten their control."

2. Good News

A warm welcome to SBI Holdings as our newest R3 member institution. It is great to have their team on board, as SBI has been quite active in the ledger space, including their recent JV with Ripple to create SBI Ripple Asia. Another member bank, Unicredit, recently released a white paper discussing the potential applications of blockchain tech to financial services. The authors Matteo and Vittorio have a wealth of hands-on experience to draw from and the paper is well worth a read in full. And a congrats as well to the TradeBlock team for their recent announcement of a successful PoC with ICAP as well as their new sister company Axoni.

3. Regtech and Identity

The US Dept of Homeland Security (DHS) recently announced requests for proposals in two blockchain related areas. One area is not too surprising: “Blockchain Applications for Homeland Security Analytics." But the other one (“Applicability of Blockchain Technology to Privacy Respecting Identity Management”) truly piques my interest, both for their desire to learn more about identity management and in their concern to respect privacy!

Continuing the identity theme, Barclays announced that they are "one [of] a group of nine companies certified by Gov.UK.Verify to supply and manage public IDs for services." The Gov.Verify program has had some ups and downs, but the effort to create a digital identity service, if only for government services, should be commended. Speaking of the UK government, we have yet another article touting their aggressive push towards central bank digital currency as part of the government's fintech hub strategy: "The speed with which the digital-currency agenda has captured the imagination of U.K. officials hints at its potential strategic value for both central banking and the economy."

...and finally, an article that I missed from last week by the always excellent Ben Thompson at Stratechery. The post is nominally about the block size debate, yet it is more a meditation on how a lack of diversity within tech can lead to blind spots in decision making:

Ultimately, I don’t know what will happen to Bitcoin, but I’m skeptical of folks who are attracted to it because it allegedly removes humans from the equation: that is and always has been an idea that only makes sense in the very narrowest view of a single Bitcoin transaction, as we are seeing all too clearly in the community’s inability to address a relatively minor issue.
More broadly, I hope that the fundamental humanity that goes into any decision — product, policy, or otherwise — is appreciated by everyone in tech. Just as products and companies are either growing or dying, so too efforts to make the technology industry more accurately reflect, and thus better serve (and better monetize!) the diversity of the human race, are either explicitly improving the status quo or implicitly embracing it. There are no neutral “rules.”

The Weekend Read: Mar 13

1. Regtech (cont)

Thanks to Kathleen B for filling in for me last week. We return once again to the Regtech theme. ESMA Executive Director Verena Ross delivered this speech to the recent Bank of England event, highlighting what ESMA has learned form their recent call for evidence:

We have found that clearing and settlement, collateral management, record of ownership and securities servicing are the areas where the technology is most likely to bring useful changes. It does so through the provision of a unique reference database, instantaneous reconciliation across all participants, immutable shared records and transparent real-time data.

A review of the speech can be found here.

Bank of England continues to explore the idea of central bank digital currency, which includes the research put forward recently by researchers Sarah Meiklejohn and George Danezis at University College London, dubbed "RSCoin":

RSCoin’s ledger is solely in the hands of the central bank, which would also retain a special encryption key that could be used to control the money supply—for example, to take actions like the quantitative easing programs the Federal Reserve and other central banks put in place after the 2008 financial crisis.
A small collection of third-party organizations would be chosen by the central bank to process new transactions and submit them for inclusion in the central ledger. Meiklejohn says it would make sense for large commercial banks to play that role. RSCoin’s centralized design, she says, means it can handle very large numbers of transactions, unlike Bitcoin.

2. R3 In The News

It was a busy week for R3 news stories. R3's Charley Cooper attended the above BoE event and a few of his comments are included in this rundown. Charley also features in this WSJ CIO Journal story on the public/private blockchain debate. Our Lab Legend Tim Grant spoke with CoinDesk this week to give some further detail to our recent blockchain trials. R3's Ian Grigg participated on a panel in London earlier this week, which the IBTimes summarizes in this story. And finally, ICYMI, have a read of Kathleen's latest R3 POV post entitled Colored Coins: Bitcoin’s Specter Haunts Capital Markets.

3. Odds n Ends

Vitalik Buterin details the pros and cons to the UTXO model in relation to the open source Hyperledger project.

Airbnb potentially exploring a blockchain based reputation system.

I for one welcome our AI overlords: Google DeepMind beats a human at Go!