Tag: blockchain

The Dutch National Bitcoin, no, wait Blockchain Congress

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Next year, I should imagine that the Dutch National Bitcoin Congress will be renamed the Dutch National Blockchain Congress, since that’s pretty much all everyone was talking about this year. Me included.

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I had a lovely day at the Congress. In the morning, Vicente Everts arrived with his Tesla for me to drive across to the the ING Headquarters, where the bank were hosting the event. Once we arrived at the HQ and parked up, Jeremy Bonney and I set about admiring some of the rather unusual works of art in their rather unusual building.

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1CP it is not. Once we arrived at the conference centre, I ran into old friend Douwe Lycklama from Innopay and I got down the serious business of working on a soundbite for the day. I came up with “The future of money isn’t Bitcoin and the future of Bitcoin isn’t money”. It’s a bonus if your soundbite can fit into 140 characters, for obvious reasons, so I thought this was a good day’s work. It was successful beyond my wildest dreams and is still being retweeted.  As it turned out, I had accidentally blundered into the Congress’ key meme.

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I settled down in the audience, in the special seats at the front reserved for payments VIPs of course, and found myself next to Conny Dorrestijn from our friend at Clear2Pay, which was handy as I don’t speak any Dutch, and she speaks it pretty well.

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And so began an excellent Congress. Great speakers, great panels and a great host. I genuinely felt that I learned something from every session and I honestly can’t say that about every single event that I get to go to. One of the things I learned was that no-one was much interested in talking about Bitcoin.

In a sold-out room packed with suits, the Dutch financial sector gathered to discuss blockchain technology, smart contracts, digital title deeds and shared supply chains — anything but the decentralized, stateless, bankless, community-driven digital currency. They even avoided the word “Bitcoin,” as if it were cursed. “The B-word” was the term du jour.

[From The Dutch National ‘B-Word’ Congress: ‘The Future of Money Isn’t Bitcoin’]

Vicente drove the day along at a decent pace and asked interesting questions to interesting people and (a key qualification for a host, in my opinion) was genuinely interested in what they said.

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Just to give you an example of the sort of things that were discussed instead of Bitcoin, in the brilliant first panel ABN Amro were talking about their pilot project to move trade finance instruments on to a blockchain. It was great to hear honest and open discussion about this whole new area of business with people who had practical perspectives.

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Actually, it wasn’t quite right to say that no-one mentioned Bitcoin, of course they did, even though the rhetoric was to my mind far less “religious” that I was familiar with from previous events. That’s not to say that the idea of Bitcoin as a revolution in the story of money had vanished. One of the presenters was the RTLZ journalist Frederieke Hegger who happens to be writing a book on the topic. I’ll be very interested to see how it turns out although of course I will need Conny to read it to me.

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There was an embarrassing incident in the middle of day. I’d been blathering on to all and sundry about how Bitcoin wasn’t money. But when the nice people at bitonic (use your iDeal to get Bitcoin here!) starting giving out free Bitcoins I was so excited that I tweeted about “free money”. Hoist by my own petard. OK, so it isn’t money it’s some weird kind of tradable commodity or something. But nevertheless, if they are giving it out free, I’ll have some.

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There were a few presentations that I’m still thinking about now. Lex Hoogduin gave a measured and thoughtful talk about money which pandered to my neo-Hayekian perspectives on private money.

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Ruben de Vries from Blocktrail was thought-provoking around issues dear to my heart. I rather liked his formulation about transactions leaking a bit of privacy.

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Bas de Vries gave a nice pitch for FlorinApp which resulted in him being offered a job at a bank live on stage (he said no, by the way). I greatly resented his youth and energy and I’ve asked the organisers to insist on a minimum age of 21 for all presenters next year.

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However, in the end the best presentation I saw came from Fidor Bank. Fidor fascinates me because, as I come from the technology side of things, they have chosen to build their bank on a fundamentally different core banking architecture. The FidorOS, the “amazonisation” of banking systems and the customer community are all new ways of delivering services. And Michael Maier is a great presenter. 

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I added my own minor contribution to the day by focussing on blockchain applications. I tried to create a narrative thrust using “the glass bank” as the backdrop and then working though transparency and shared ledgers to get to the blockchain itself. I then recycled some blockchain applications that I’d heard about in different contexts and asked the audience to indicate which ones they believed in. The slides are online if you want to see them.

If you feel like killing some time, the whole event was filmed and you can see the video on the home page (my talk starts about two hours in if you want to see the audience responses for yourself).

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My conclusion for the day is that people who say that shared ledgers will transform financial services are probably right but the people who say that the Bitcoin blockchain will do so might well be wrong. It was not at all obvious to me at the end of the day that the computational expense of the Bitcoin blockchain makes it the best implementation of shared ledger when working within reputation groups (i.e., financial services). It was designed to meet a very specific set of requirements to do with “cash”.

It’s like the first steam engine that was designed to pump water out of mines. People didn’t put that steam engine on rails and start shuttling miserable hordes from Woking to Waterloo. It was a steam engine, yes, but it wasn’t that steam engine. It was a steam engine with a rotary converter and a governor and so on (and I think we’re still waiting to see what that sort of blockchain might look like. The crucial improvement to the steam engine was the Boulton and Watt separate condenser. What is the equivalent for the blockchain? Ethereum? Maybe. Hawk? Maybe. I open to suggestions.

Still arguing about the blockchain

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I’d been along to the first European Bitcoin conference, I’d asked our guys about the different aspects of the technology, I’d looked at the functionality that Bitcoin delivered. I came to the conclusion that the technology behind Bitcoin (the blockchain) was much more interesting than the new digital currency and this is what I told our clients and, later, blog readers. Here’s what I wrote back in 2011:

The best strategy is to learn, and to think about ways that the cryptography at the heart of Bitcoin can be used to deliver new kinds of services in a connected environment. I don’t think cash will be one of them.

[From What should the “mainstream” think about Bitcoin?]

I still don’t. And just to save time and e-mails, yes I know that technically you can’t use the Bitcoin blockchain without technically having to use Bitcoins but I don’t seeing using the smallest possible divisions of bitcoins that there are (known as satoshis – there are 100,000,000 sastoshis to one Bitcoin, making them worth around one ten-thousandth of a cent) as transport vehicles for digital assets as the same thing as using Bitcoin as money and certainly not as a currency. And it’s only one way of building a blockchain anyway. But back to the point.

Interest in bitcoin has waned.. Interest in the underlying mechanics of the currency, however, has continued to grow. The technological breakthroughs that made bitcoin possible, using cryptography to organise a complex network, fascinate leading figures in Silicon Valley. Many of them believe parts of Mr Nakamoto’s idea can be recycled for other uses.

[From Blockchain: The next big thing | The Economist]

Some of them are pretty serious people, too. Wim Raymaekers, who manages SWIFT’s Banking and Treasury Markets worldwide and is responsible for the evolution of its core banking value proposition, had this to say about Bitcoin earlier in the year [Raymaekers, W. Cryptocurrency Bitcoin: Disruption, challenges and opportunities. Payments Strategy and Systems 9(1): 22-29 (2015)]:

Banks should look at the technology underlying cryptocurrencies as a potential generic new way to transfer ownership of value in the longer term.

This is essentially the same thing that we said four years ago, so I was happy to see a serious player coming to the same conclusion from a different perspective. And I can assure that SWIFT is not the only serious institution thinking this way. One of the first blockchain-centric assignments for a financial services customer that Consult Hyperion worked on was to look at the idea of using blockchain technology in certain kinds of trading environment and this particular use of the blockchain appears to be gaining momentum.

[Overstock.com] filed a prospectus with the Securities and Exchange Commission that indicates it may issue up to $500 million in stock or other securities using technology akin to the online software system that underpins bitcoin.

[From Overstock Files to Offer Stock That Works Like Bitcoin | WIRED]

Hence I was very interested to see that Nasdaq are going to do an experiment in just that space. To have one of the world’s most important exchanges use the technology for trading would certainly be a confirmation that there is something to the idea that the blockchain is a new way of doing things and a genuinely novel solution to an old problem. So how are they going to do it?

Nasdaq will initially leverage the Open Assets Protocol, a colored coin innovation built upon the blockchain.

[From Nasdaq Launches Enterprise-Wide Blockchain Technology Initiative – NASDAQ.com]

Colored coins? Well, they’re not really coloured (just like quarks aren’t really red, green or blue).

…bitcoins can be selectively “colored” or marked with extra information to represent something else, such as a stock, but it still retains all the information needed to still use it as a bitcoin. If the stock fails for that colored coin, or the holder wants to abandon the stock and use the bitcoin instead, the “stocks” that the user received as fractions of a bitcoin can be spent as a normal bitcoin without any problem.

[From ELI5: What’s the difference between sidechains and colored coins? : Bitcoin]

Now, a blockchain is a computationally expensive mechanism for maintaining a distributed ledger. It’s worth doing for Bitcoin because the design goals for Bitcoin include cash, and cash must be resistant to double spending and counterfeiting and open to use by anyone. Is it worth doing for, for example, equities? That depends on how cash-like you want to make them. Remember Edward de Bono and his “IBM Dollar”? I was thinking about this while I was listening to Angus Scott from Euroclear (which makes Visa look like a picnic – it settles more than a trillion euros every week) talk at the recent Payments Forward event on cryptocurrencies that my colleague Steve Pannifer commented on last week. Angus was talking about “collapsing” the data flows around clearing and settlement, which I thought was a useful way to think about the impact of the blockchain on the activities.

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So – in the absence of any actual knowledge of what they doing – Nasaq will (I’m guessing) use coloured satoshis as a mechanism to maintain a distributed ledger as a means to affect trades without clearing: if I want to move one of my IBM shares from me to you, I simply send you the satoshi with the IBM share in it to you and it’s yours. Done. All of the asymmetric, error-prone, costly data flows associated with the trade are thus collapsed. It’s certainly an interesting experiment although it’s not to my mind an indication that Nasdaq will any time soon cut over to the Bitcoin blockchain or, indeed, a blockchain of any description.

Note that this is not THE Nasdaq market. Nasdaq is only testing with a special tiny little private market that was previously tracked by hand. This is just an experiment that might not go anywhere.

[From Wall Street is using Bitcoin, not just the blockchain. : Bitcoin]

Yes, absolutely. But like all well-designed experiments, even if it goes nowhere we will all learn something from it. I’m not smart enough to predict what is going to happen here, and my hunch is that coloured coins are not the optimal implementation for this sort of thing and that something like Ethereum would be better (because I think that “smart contracts” have a key role to play). But that’s just my opinion. In the meantime, the more experiments the better as far as I am concerned.

Is it safe? Is… it… safe?

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Someone I know to be an impeccable source and a first-hand witness told me an interesting story about a young female friend who fell ill on holiday in North Africa. When she got home, she claimed for the doctor’s bill on her travel insurance. The claim was rejected because the person who treated her wasn’t actually a doctor. It was, as it transpired, just some guy who worked for the hotel (and presumably examined young women as a hobby). Which led me to think: how would you know? If I got sick in New York and asked the hotel to call a doctor, I’d be reasonably confident that the concierge would call an actual doctor rather than a friend who drives a taxi but has a stethoscope in the trunk. But would I check? Would I have called the New York state medical licensing board (or whatever – I just made this up) to find out?

Maybe a smartphone app that lets you take a picture of the “doctor” and then, after a few seconds, shows you a picture of his diploma would do it. Which reminds me of the old Robert Schimmel joke about going to the dentist: “Do you want a shot of novocaine / No, I want a shot of you getting a diploma”. But, for reasons related to discussions earlier in the week, I’m not sure about “passive” credential services like this. Perhaps a better solution would be that the doctor arrives with a smart card or his or her mobile phone or a badge or something else with NFC or a contactless interfaces, you read it with your phone and your phone displays a blank screen if the person isn’t a doctor and a their picture if they are a doctor with a valid license to practice in the location where you are scanning.

A woman has been charged with fraud after allegedly pretending to be a doctor at GP practices across the country…. The 29-year-old, from Maidstone, in Kent, allegedly had no medical qualifications but was thought to have used a name and registration number with the General Medical Council belonging to a real doctor.

[From ‘Fake locum GP’ who worked in practices across Britain charged with fraud | Daily Mail Online]

Now, if I were a medical practice employing a doctor, I might be tempted to at least look them up on LinkedIn or something before I let them get their hands on a patient but I suppose that under the National Health Service it’s considered ungentlemanly or discriminatory or just plain rude to ask a prospective clinical employee for verifiable evidence of any valid qualifications. We are English, so we take people at their word. Dictum meum pactum.

But then I was thinking that if I go to see a doctor for some antibiotics I don’t care if it’s a real doctor or not so long as they can write me up some amoxicillin. Or if I am expecting intimate examination for my problem, I might not care who Doctor X actually is, but I do care that they are a doctor. That’s a different problem. Anyway, being English, I am far more terrified by fake dentists.

A bogus dentist who earned almost £230,000 by using a fake degree certificate to land work at a string of NHS hospitals was jailed for three years today.

[From Bogus dentist who earned £230,000 operating in NHS hospitals jailed for three years | Daily Mail Online]

Remember, these news stories (and believe me, they are far from unusual in this sceptr’d isle) are telling us about the bogus doctors, dentists, nurses and surgeons who got caught. There simply must be others working here, today, undetected. Aargh!

Since no post on fintech right now is complete without a blockchain reference, here’s a straw man for comment. Hospitals, clinics, GP surgeries and pharmacies around the country are chock full of PCs that are doing nothing for most the time. Make them mine a blockchain of medical professionals that anyone can look up. Then when you graduate medical school you could be given a smart contract that contains your license to practice subject to certain conditions that the contract can check for itself. When I go to see the dentist, I can ask him to whip out his smartphone and demonstrate ownership of the private key that the smart license has been sent to.

Markets and blockchains

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A blockchain solution, as many people have observed, is best suited to environments where there are a great many actors, some of whom may be untrustworthy. Such as, for example, financial services markets.

A British man, Mr Navinder Singh Sarao has been arrested, and faces extradition to the United States, accused of market manipulation, allegedly causing a 1,000 point drop in the Dow Jones index in 45 minutes and leading to personal enrichment to the tune of $40 million from that and similar incidents. Mr Sarao is a lone trader and was apprehended in his parents’ modest semi-detached house near Heathrow. He lives in a similar house across the street.

The profiteering is supposed to have occurred roughly like this:

1. Multiple sell offers were placed on the futures market, at low prices, which the offerer had no intention (and, in all probability, not the means) of fulfilling.

2. The primary market in the affected stocks, and perhaps others, fell on the flood of offers.

3. The manipulator bought shares at the depressed prices.

4. He withdrew the futures offers.

5. The primary market recovered and the manipulator sold his shares at a profit.

Leaving aside, of course, the question of Mr Sarao’s guilt or innocence, a couple of questions spring to mind:

• When someone in London manipulates a market centred on New York, in what criminal jurisdiction is he acting?

• To what extent does this kind of behaviour occur: is it possible that major market players indulge in such manipulations but at a more discreet level?

I’m by no means an expert in the particular markets involved here. But I do know that if I see my neighbour repeatedly put his house on the market, but never actually sell it, then he’s not exactly serious. If he puts it on the market for a first time, owning a similar property, and as a middle-class Englishman, I’m naturally interested in the price. If that price is wildly high, compared to actual recent deals for similar houses that are recorded on the publically available land registry database, then I’ll conclude that, as for a second marriage, my neighbour is suffering from the triumph of hope over experience. It’s about him, not the property and not the market. Similarly, if the price is unusually low, I’ll conclude that he has fallen upon hard times and is need of ready cash, rather than immediately supposing that conditions are such that there is a surfeit of such sellers that will move the market.

If another neighbour, who drives a modest car, suddenly auctions Bentleys I’ve never seen on eBay, my suspicions would be aroused. And so on and so on. What’s important in these examples, and applicable to wider markets, is not the absolute knowledge of a person’s identity, but of his standing and track record.

If somebody offers to sell stocks at a future date, he is more credible if it can be demonstrated that he actually owns them; or somewhat more credible if it can be demonstrated he has borrowed them. If neither of those can be demonstrated, then evidence that he owns lots of other stuff, to a much higher value than what he has offered, would be reassuring. Likewise, evidence that a reasonable proportion of his offers has been fulfilled.

How might any of that be achieved? One way would be for exchanges, registrars and so on to maintain central databases of offers, trades and holdings, query-able in realtime by market participants. That would raise a number of difficulties: for example, queries could place a massive strain on centralised systems, which might also present attractive targets to hackers working on behalf of manipulators.

An alternative approach could be to implement distributed ledgers using the blockchain technology that underpins BitCoin, or a variant thereof. There would be no single point of failure, and manipulation of the record is, for all practical purposes, impossible once a chain acquires new links (new offers, new transactions, new holdings, etc) and is widely replicated. For an in-depth view of how the blockchain can provide for efficient and secure financial transactions, beyond crypto-currencies, register for the excellent Payments Forward event on 11th May in London and listen to our very own Steve Pannifer demystify the technology before the panel session featuring Lloyds Banking Group, Eris Industries and others.

To me, it is incredible, and seriously worrying, that major players in the financial markets underpinning our economic system are not alert to basic warning signals that any dealer in second-hand goods would recognise. Indeed, they cannot be, given the current infrastructure. Fortunately, technology is at hand to rectify that. Who will move?

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Payments may be the least interesting thing to do with a blockchain

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The general fintech consensus seems to be that the blockchain is interesting but that Bitcoin is not. Maybe it’s just fashion. Who knows? But I’ve always thought that the blockchain is a fundamental technological breakthrough and I’m fascinated to see the emerging use cases.

Continue reading “Payments may be the least interesting thing to do with a blockchain”

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