The Weekend Read: Oct 17

Ed. Note: I will be speaking at a few upcoming events, including the Capco Re-Charting Realities event in NYC on the 22nd and at Money 20/20 in Las Vegas on the 27th. Please stop by and say hello.

Post-event pic at SIBOS blockchain panel

1. SIBOS: NKOTB(chain)

SIBOS Singapore wrapped this week, and one word that attendees could not escape was blockchain. Over 1000 conference-goers attended the first day Innotribe panel New Kids on the Block(chain). Eight panelists (including three R3 partner banks, Barclays, BNY Mellon and UBS) crowded into a set of the "not-too-distant-future" to discuss the promise and potential of blockchains and shared ledgers in financial services:

One of the panelists above, Dan O'Prey, stuck around to collect the first prize Publishers Clearing House-sized check for the Innotribe Startup Challenge for his previous company Hyperledger. For a few other roundups of the event, click here and here.

2. Rebranding, Bit by Bit

R3's Tim Swanson has a very comprehensive roundup of the pervasive trend of rebranding in the Bitcoin startup and investing world, as many groups have conspicuously moved away from featuring the virtual currency in their name or their pitch. We have seen software eat the world, now blockchain eats bitcoin...

One of the more inscrutable pivots has been that of Uphold, née Bitreserve, which now joins the handful of consumer facing "...but with Bitcoin!" startups that have morphed into Venmo wannabes.

3. Startups in the News

Congrats to the teams of Chainalysis, Wave and Syndicated Loan Direct for their announcements at this week's Barclays Techstars NYC demo day, as each inked contracts with the UK bank. Especially happy to see the Wave team overcome their handicap of having your author as a very negligent mentor...

Across the pond, tight-lipped startup SETL announced that their yet-to-be-seen ledger technology has processed over a billion simulated transactions behind closed doors. The announcement was very light on details, so it is unclear if the tech behind this is in-house built or part of their previously announced outsourcing deal with fellow startup Credits.

Blockstream hit the news earlier this week with the first commercially released sidechain dubbed "Liquid" :

It’s one more front being opened in the quest to keep bitcoin alive. While the digital currency remains the only use case of the software to reach any critical mass, and the price has stabilized, the underlying technology has itself this year become the focus. From the startup world to the biggest Wall Street firms, there are numerous efforts under way to build products and services that utilize bitcoin’s underlying technology, while abandoning bitcoin itself. The Blockstream group is an effort to counter that tide.

4. Shared Ledgers FTW

The always insightful Pascal Bouvier continued his bullish exploration of distributed ledgers in this post on the potential complete disruption of capital markets infrastructure:

Another way to describe the above 10 bank example, pre and post distributed ledger, is to say that markets rely on the ability of multiple parties to have the same view of what has happened, what was traded and by whom, who owns what, who owns what to whom. A distributed ledger system can guarantee that these parties share the same view of the world without the combinatorial explosion of reconciliations between siloed systems.

A recent Water Technology panel explored the not-to-be-neglected view of buy side participants on the potential blockchain disruption:

"Everyone is looking at blockchain," [Mike] McGovern [CIO at Brown Brothers Harriman] said. "We're looking at it. We've set aside some funds in our 2016 innovation budget around R&D and working with colleagues on the buy side to think about how it can be applied."

And finally, R3's own David Rutter has an opinion piece in the Tabb Forum entitled Cutting Through the Noise – The Transformative Potential of Distributed Ledger Technology:

By collaborating on research, experimentation, design, and engineering, our aim is to help advance state-of-the-art enterprise-scale shared ledger solutions to meet banking requirements for security, reliability, performance, scalability, and auditability.

The Weekend Read: Oct 11

1. Ripple Announcements

Earlier this week, Ripple Labs made a slew of announcements, including a re-branding from Ripple Labs to just Ripple. The announcements also covered an additional investment from Santander Innoventures, two repackaged licensable products and, most interestingly, an open source Interledger Protocol (ILP). Ripple CTO Stefan Thomas describes it further in this CoinDesk article:

In terms more familiar in the industry, Thomas compared ILP to Blockstream's sidechains project, which is seeking to extend the functionality of the bitcoin network by allowing bitcoin assets to be moved back and forth between altnerate cryptographic ledgers and the public blockchain.

"Interledger is a complement to sidechains," he said. "Sidechains is about how do you create these ledgers, ILP is putting them together. At ILP we're mostly thinking about if you're trying to connect a bitcoin sidechain and a PayPal ledger, how do you get from one place to another."

2. The Road to SIBOS and Money 20/20

[ed. note: I will be participating in Money 20/20 later this month. If you would like to meet up during the conference, please let me know.]

Don't forget to bring your own napkins...

To celebrate the upcoming payments-themed events, enjoy the articles below. Speaking of enjoy, those of you currently in Singapore for SIBOS 2015 should make sure to visit the crispy duck rice man at Marina Food House near Raffles Place, you wont be disappointed!

R3 partner bank BNY Mellon recently released this report entitled Innovation in Payments, which serves as an excellent overview of the broader fintech-related trends in banking. The report goes into some detail about the promise and challenges of using blockchain related tech for improving payment rails:

The speed of fintech-fuelled change in the payments arena means banks need to shake off their reputation as being slow to adapt by implementing swifter technology development cycles and replacing legacy payments systems. The financial services industry already has one of the highest ratios of IT spend as a proportion of revenue, with levels expected to reach US$197 billion in 2015. That said, over three quarters of this is estimated to be in maintenance rather than new services. Banks need to redress this imbalance.

Indeed, digital currency-based solutions and the potential they hold in terms of settlement mechanisms and exchange of value are forecast to act as a disruptive force in the wholesale payments sector as various fintech start-ups launch their offerings in the medium- to long-term.

"Potential" is the key word in the passage above, since most of the benefits of blockchain based approaches to payments and remittances has yet to be borne out. This past week alone, we have seen this article by a Rebit.ph employee admitting that bitcoin for remittance didn't address the true cost issues residing within the 'last mile' of payments, plus another report of one (unfortunately named) startup abandoning bitcoin altogether in their remittance model.

3. Banks and Blockchains (cont.)

The long delayed Gemini exchange, backed by the Winklevii, officially launched Thursday in NYC. Instead of going the BitLicense route, the exchange opted to mimic the approach of fellow exchange itBit and was granted a trust charter by NY State: "if we are going to build a bridge to the financial mainland, then Gemini must look and feel as safe, secure and compliant as any other top tier financial institution in the world."

This collection of recent quotes concerning banks' blockchain exploration was one of the more enjoyable reads of the week. I am still trying to parse out the Che Guevara analogy...

And finally, Coinbase's Nick Tomaino echoes the sentiment above with a brief posting on the folly of permissioned systems:

The reality right now, though, is that most banks aren’t talking about this technology breakthrough when talking about “blockchain.” It’s too disruptive to most banks, which have existing business models and profits to protect. What most banks are talking about when discussing “blockchain strategy” is a shared database that could have been built long before Bitcoin existed. [snip]

In the short-run the bank private blockchain noise is slightly confusing. But in the long-run, these experiments are likely to be positive for the ecosystem and accelerate adoption by exposing more people inside banks to these concepts. Ultimately, the disruptive nature of the Bitcoin blockchain will be clear to all. Next time you find yourself thinking about the Bitcoin blockchain and private blockchains, read some Clay Christensen.

In the end I know that we all tend to talk our own book, but I struggle with the use of the Christensen reference at the end. As I have mentioned previously, having a network where validators are permissioned does not preclude the existence of permissionless innovation!

The Weekend Read: Oct 3

R3 has its own meme...

1. R3 Announcement

We were proud to announce an 13 additional global banks joining our initiative. For additional coverage you can visit our newsroom page.

2. Blockchains for Banks

Anthemis Group's David Galbraith had this week's must read with this post on why banks are so interested in distributed ledgers. In short, if Marc Andreessen is correct that software is eating the world, then banks have realized that blockchains and their ilk could potentially 'eat' the need for third party bank infrastructure:

This updated model can be done much more efficiently with blockchains, which could replace 3rd party consortium entities with software alone. By removing a middle man from doing this, the constraint (that the consortium cannot threaten the banks) that ringfences the consortia from not encroaching outside of their designated territories disappears and would allow blockchain based systems software to fulfil their potential to innovate and do more than existing cooperatives like SWIFT can.

As a side note, the Napster or Bitcoin style model of truly decentralized systems with no entity in overall control of any portion will probably not happen in Financial Services unless there is a fundamental shift in how societies work, triggered by them.

Who knows, maybe this could happen, but not in the short term. The reasons for this are that decentralized systems can’t be governed by anyone, so they end up being either compromised or outlawed and secondly, they decentralize revenue. It’s difficult (not impossible) to imagine a decentralized Facebook usurping them because Facebook centralizes revenue and therefore may be able to compete more effectively. Both of these reasons are why the last wave of decentralization faded.

In summary, the ‘multiple entities tied together by software only consortia’ model will be where banking innovation for back end processes and infrastructure happens, and blockchain technology will certainly be the initial focus.

I cannot quote the article enough in this post to do it justice, so please read the whole thing. His thoughts on distributed ledgers being "Consortia-as-a-service" strongly echo a lot of our thinking internally.

Another read-in-full piece is this post by Dwolla CEO Ben Milne, giving his views on when and where a blockchain-ish ledger would be the best fit for financial services. His views are especially insightful, since he and his company began hands-on work in the fintech and ledger field well before everyone caught the blockchain bug:

I personally feel that a blockchain as a ledger is the irrefutably best form of storage when:

• A view-all permission is best.
• Speed of the ledger is not a major concern.
• Confirmation of the ledger information is used as the source of truth only after some time has passed.

Blockchains are fascinating but have inherent limitations like any technology. [snip]

When applying new ledger technologies to banking there are banking specific concerns to deal with and these are just some of them. Solving for short/long term memory, compliance, and providing the necessary interface to regulated entities are all problems third parties have solved in many cases with different ledgers. The intricacies of understanding how all this stuff works is kind of confusing but banks are just trying to solve a problem, not create a whole bunch of new ones for themselves.

3. Ethereum Project is Vibrant and/or Broke

Ethereum Godfather Vitalik Buterin gave a lengthy and informative update on the Ethereum platform earlier this week. The post employs the tried and true "sandwich" technique, leading and ending with many of the recent successes for the Ethereum platform and community. Yet the "meat" of the post describes the less-than-positive state of finances for the Ethereum Foundation:

First of all, it is indeed true that the foundation’s finances are limited, and a large part of this was the result of our failure to sell nearly as much of our BTC holdings as we were planning to before the price dropped to $220; as a result, we suffered roughly $9m in lost potential capital [ed. note: the "lost potential" equals half the funds raised in the quasi-IPO], and a hiring schedule that was meant to last over three years ended up lasting a little under two (although bolstered by a “second wind” from our ETH holdings).

The foundation and its subsidiaries alone simply do not have the manpower to push the entirety of this vision through to its ultimate completion...although the foundation and its subsidiaries can, and will, continue to be the primary driver of technology at the core, a highly community-driven model is necessary and essential, both to help the Ethereum ecosystem maximally grow and flourish and to establish Ethereum as a decentralized project which is ultimately owned by all of humanity, and not any one group.

4. Fintech Ledger Startups in the News

This week's article Meet the new kids on the blockchain does a very good albeit brief job reviewing four startups focused on bringing ledger solutions to financial institutions: Symbiont, Clearmatics, SETL and Eris. Worth a read, if only to get a peak at the Eris team posing in a London back alley:

Which Eris team member is Brick Tamland?

Speaking of Anchorman-style alley fights, Symbiont CEO Mark Smith took the gloves off regarding his competition in the article Smart securities issuer Symbiont fires shots in the private blockchain arms race:

"But from a business standpoint we are way ahead of [Digital Asset Holdings]. They are probably a year behind us on all fronts." Referring to Digital Asset Holdings' recent issuance for Pivit, Smith said: "We had done something substantially more difficult over a month prior. So we were the first to do it and we are the only firm to do it with a smart contract. So again, they are behind us and then what they did wasn't even really that impressive." Smith said DAH is very skillful in the media and has a big budget and can scale quickly from a company standpoint. "But there is no substitute for experience in the market and that's really what we have," he added.

In the words of Ron Burgundy: "Boy, that escalated quickly."

The Weekend Read: Sep 26

Mike Tyson thinks all alt-coins are ludacrisp

1. Barclays wants to help blockchain startups understand investment banking requirements

This lengthy interview with Dr Lee Braine of Barclay's Investment Bank CTO Office clearly highlights the opportunities (and challenges) for the application of shared ledgers and smart contracts within financial markets. The piece is well worth a careful read, as Dr. Braine's overview of the essential requirements for shared ledgers echoes what we hear at many of our partner banks. Yet he goes a bit further, intimating that we should not take as a given the need for global distributed consensus in all cases:

"If there is potential from greater sharing of data, we then need to consider the range of architecture options. For example, what if you consider fully-replicated shared copies, so every bank has its own copy of the entire set?

"Well, there are challenges around that in terms of duplicate storage, duplicate processing, etc. And then there are alternatives, such as partitioning the data so participants have only the data that is relevant to them; that could have efficiencies in terms of storage and processing and it may also mitigate challenges around data sharing and privacy for example.

"There is a variety of views in the industry around the pros and cons in each of those design points. And the industry needs to take account of those as it comes up with open standards and open protocols – and heads towards the future state...

"Whether you are looking at permissioned or permissionless ledgers, it's obviously necessary to ensure security, reliability, performance, etc. I think experimentation will explore all those options. There are clearly tremendous opportunities for startups in the blockchain space. For investment banking, blockchain-inspired solutions such as shared ledgers and smart contracts should aim to meet the enterprise-scale architectural non-functional requirements."

2. Blockchain on Wall Street

MIT Technology Review has a nice run down this week about Wall Street's recent firm embrace of all things blockchain, entitled Banks Embrace Bitcoin’s Heart but Not Its Soul:

One such project became public last week, when New York City startup R3 announced that it was partnering with nine banks including Goldman Sachs, UBS, and JP Morgan to develop blockchain software that could ease the transfer of financial assets between institutions. If an asset’s ownership is recorded by cryptographic software in a blockchain recognized by multiple banks, it can be transferred between them more rapidly than today, says Richard Gendal Brown, R3’s head of technology.

In theory, a system like that could be built on top of Bitcoin. But some of its features are not a good fit for the financial industry, such as how its blockchain is public, says Brown. “Customers tend not to want their private financial transactions visible to everybody.”

Richard gets another shout out in an interview with Dr. Gideon Greenspan, founder of Multichain: (ed. note: Dear IB Times: PLEASE stop embedding auto-playing video in your stories, it is driving me mad...)

Greenspan compared this to work that was done decades ago in laying the theoretical foundations for the relational databases that run the world today. He added: "I wouldn't say that either banks or startups were intrinsically qualified or otherwise to work out these fundamentals. Rather, I think this is work that should be done by experienced computer scientists and system architects, wherever they might happen to be. The hiring of Richard Gendal Brown by R3 is I think a recognition of this fact, and a very positive step."

3. CFTC loves/hates Bitcoin

Following up from last week's announcement on Bitcoin-as-commodity, the CFTC announced that they had filed and settled charges against Tera Exchange, accusing the exchange of performing a wash trade during their first (only?) BTC SEF transaction last year. Meanwhile, the recently departed Commissioner Wetjen has joined exchange-in-waiting LedgerX as a board member.

4. The Internet loves/hates on Coinbase and 21

Coinbase stoked the ire of Redditors everywhere with their announcement that they have filed 9 patent applications on business processes related to the Bitcoin protocol. Brian Armstrong, CEO of Coinbase, tried to lay out the case for Coinbase as one of necessity:

Our ultimate goal in obtaining bitcoin related patents is to keep them out of the hands of bad people, use them defensively to protect Coinbase from patent trolls, and help ensure the bitcoin ecosystem continues to grow.

Bank of America also got into the patent game, filing a patent related to cross-border transfers that may involve cryptocurrency rails. (Full patent here).

Yet no story this week produced a hotter internet flame war than the Amazon pre-sale of 21.co's 21 Bitcoin Computer (or Energy-Arb-as-a-Service for the snarky). 21's CEO Balaji Srinivasan describes the device as a 'devkit' that is the first step in returning "economic power to the individual" by making Bitcoin micro-payments embedded into digital workflow.

One excited blogger compares this release to the Altair 8800 and the dawn of a new internet:

Next, link unforgeable bitcoin private keys with biometric identification. And… *waves hands vigorously* You just killed:

• Passwords…

• sign-ups…

• e-mail confirmation…

• login screens.

And removed a ton of hassle and frustration and waste.

While others weren't so complimentary...The most eloquent take-down came from Izabella Kaminska of the FT, calling the 21 RPi+ASIC "a machine built to burn your real world money." She also weaves in Colombian drug trade, Kennedy Airport and the phrase "Keynesian coal mine" in the very entertaining blog post:

Which brings us back to our original point about 21 grammes being the weight of your soul.

What 21 Inc is really doing is recasting the classic story of the Faustian bargain for the digital age. In this retelling of the narrative, however, 21 grammes is the weight of your digital data, $0.03 is the value the digital economy wishes you to get per day and the true breadth and scope of the contract you sign with Balaji Srinivasan, 21 Inc’s CEO, is revealed in the terms and conditions outlined above, and is definitely worth more than $399.99 to 21.