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The Weekend Read: July 10

Screen Shot 2015-07-11 at 8.35.40 AM  1. Blockchain on Wall Street (cont.)

BNP's Quintessence magazine has a very nice overview of the potential for blockchains. I was nodding my head vigorously at the passage below, as internally at R3 we have discussed at length the possibility of the bank custody model adapting to custody of a customer's private keys:

The first scenario creates a total disruption. In its purest form, a distributed blockchain system allows all market participants direct access to the DSD (Decentralised Securities Depositary), to the exchange and to the post trade infrastructure (clearing & settlement). If this setup develops then existing industry players might be redundant. However, given the challenge of keeping the private key of the account safe, it is possible that investors will entrust an authority to safe keep the private keys. It is also possible that custodians will be responsible for the application layer over the blockchain or that they will launch their own network.

The second scenario is an integration within the post trade ecosystem. The distributed ledger might only be the next generation of IT infrastructure. In this scenario custodians or settlement infrastructures might use the blockchain to record the ownership and trades between themselves; however end investors will still need to use a custodian to have access to the market. The ledger will only be accessible to authorised market participants. Existing actors will remain in charge in this scenario however their level of service could change and they may deploy new services that they could not in the past because the investments required were a huge barrier to entry.

Philippe Denis, the chief digital officer of BNP Paribas Securities Services, gives more context to their thinking in this article (pdf version): How BNP Paribas Securities Services stays ahead of the game - The Banker

2. Bitcoin Fork?

While BTC price had another good week (whether due to the Greek crisis (see below) or a Chinese Litecoin pump 'n dump can be debated), the protocol had a fairly rough time. As the picture above shows, an incomplete roll out of a Bitcoin Core update has led to miners confirming incorrect blocks, a/k/a it has experienced a fork, once again calling into question the idea that fully decentralized governance can work (or if it really even exists and instead has an implicit governance already. See: block size debate)

3. Bitcoiners on Greece (cont.)

4. Fintech Reports

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5. R3 Advisor Corner

Finally, a review of the in-depth posts released this week from R3 advisors Richard Brown and Tim Swanson:

-Richard Brown: A SIMPLE EXPLANATION OF BALANCE SHEETS (DON’T RUN AWAY… IT’S INTERESTING, REALLY!) [ed. note: I did run away the first time, but glad to have returned to finish the article...]

"[A]s I’ve written repeatedly, we could be witnessing the emergence of shared ledger systems in finance – blockchains, if you prefer. And they will be used to record obligations of – and agreements between – firms and people of all sorts."

-Tim Swanson #1: A blockchain with emphasis on the “a”, where he takes on Chris Dixon and Fred Wilson (aim a bit higher next time Tim)

-Tim Swanson #2: he drops the mic with a speech in front of bankers, VCs and Bitcoiners with Learning from the past to build an improved future of fintech:

If we were to create a valuation model for the bitcoin network (not the price of bitcoins themselves), the network would be priced extremely rich due to the wealth transfer that occurs every 10 minutes in the form of asset creation. The network in this case are miners, the block makers, who are first awarded these bearer instruments.

How can financial institutions remove the duplicative cost centers of this technology, remove this $300 million mining cost, integrate permissioned distributed ledgers into their enterprise, reduce back office costs and better serve their customers?

That is a question that several hundred business-oriented innovators and financial professionals are trying to answer and we will likely know in less time it took Bitcoin to get this far.