Bits and stuff: April 29th, 2018

A really short summary today, I’m off to the Collision conference in New Orleans… (never been to Louisiana before!).

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Oh, I’m on the Blockchain Insider podcast this week! It was even more fun than I expected, and the best part was meeting my fellow panellists, Sara Feenan, Jo Lang and Olivia Vinden – I could have chatted to them all night. Host Sarah Kocianski was brilliant as usual, and apart from her eloquence and wit, had the generosity to provide wine during the taping…

blockchain insider

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Jemima Kelly of the FT wrote a great article calling out the dubious governance (and maturity) of the IOTA team… (yes, we do need to hold pioneering founders to a certain ethical standard).

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This past week we saw the debate kick off in earnest on whether or not ethereum and ripple’s tokens are securities.

Gary Gensler, former chairman of the CFTC and ex of the Obama administration and Goldman Sachs, believes that they are.

But at the same time, he believes that cryptocurrencies will be “somewhere in the financial system in a meaningful way.”

Peter van Valkenburgh of CoinCenter argued that ether should not be considered a security. Preston Byrne explained why he thought it should.

A Twitter battle ensued, of course.

‘Dis gonna be good.

dis gonna be good

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Gillian Tett of the Financial Times points out that overlooking the rise on non-bank lending – at this point in the market (when everything looks rosy) – should be setting off alarm bells.

She reminds us that, according to the International Monetary Fund:

“’Signs of late cycle credit dynamics are already emerging in the leveraged loan market,’ the IMF Global Financial Stability Report observes, noting that ‘in some cases, [this is] reminiscent of past episodes of investor excesses’.”

On the one hand, “getting non-banks involved means that any future pain will be widely dispersed, rather than just sitting with banks” (although not sure how that’s better).

On the other hand, “if the non-banks suffer losses when defaults rise, it is also possible that this will spark severe capital markets contagion, hurting banks and non-banks alike.” Yes, especially when we take a look at who else those non-banks have lent to, and under what conditions.

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So much more to talk about, it was a damn interesting week, but gotta go to the airport so I’m just going to hit “Publish” and try and catch up next week (yeah, that’s not gonna happen…).

‘Bye!

Bits and stuff: April 22nd, 2018

Noah Kulwin’s interview of Jaron Lanier in NYMag is a gut punch. I don’t subscribe to his apocalyptic view of social media, nor do I believe that the world is worse than when we were kids… but he does identify, with blistering clarity, the inherently centralizing forces underlying the technology that was meant to democratize everything.

“And despite all the warnings, and despite all of the cautions, we just walked right into it, and we created mass behavior-modification regimes out of our digital networks. We did it out of this desire to be both cool socialists and cool libertarians at the same time.”

And given that we hear the same democratizing claims about cryptocurrencies and blockchain, as we see centralization of services and the encroachment of the regulators (who are – reasonably, I might add – being welcomed with open arms), the alarm is (pardon the terrible pun) ringing a bell…

“The argument is that social media hates your soul… And it’s also fucking phony and false. It suggests that life is some kind of optimization, like you’re supposed to be struggling to get more followers and friends.”

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Let’s talk about patents.

News of applications to do with blockchain technology are interesting, but do not indicate plans to use said technology.

They do indicate an interest in the concept, and they reveal that the company has developers (probably in-house?) working on fleshing out ideas.

But they do not point to an intention to actually use said ideas. Or that said ideas would even work.

So, why would a company spend time and money on the patent process if it’s not to use the darn thing? Why invest without an expected return?

Patents can be tactical and point to new product launches… but more often, they’re defensive. A company wants to stop someone else from staking that claim. Sometimes, they just want to stop a competitor from entering a certain segment of the business (the defensive patent doesn’t even need to actually work for this to achieve its objective).

What perhaps many don’t realise is that a patent doesn’t need to be very detailed. It’s generally enough to just explain how the idea would work, in theory.

As anyone in the blockchain world knows, theory is tough to implement, especially when stakeholders, costs, latency and generally, you know, reality start to show that things are always more complicated than they seem.

So, just because Walmart has been granted two patents that show how payments data could be protected on a blockchain, we can’t assume that they have plans to implement this technology.

Nor that they should. Patents don’t generally make judgements about economic viability, or strategic common sense.

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Here’s an article about a group of reaaaally young aspiring crypto hedge fund managers… setting up a “Global Center for Investment Fund Studies, to help new fund managers raise capital” at Harvard this month. With a crypto hedge fund lawyer (who says he gets about 6-8 enquiries daily from other aspiring crypto hedge fund managers).

You can’t make this stuff up, really.

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So, what with Microsoft and it’s Azure platform, hints last month that Google was looking to incorporate blockchains into its cloud offering, and now Amazon’s announcement that its cloud platform Amazon Web Services will offer out-of-the-box blockchain services, it seems that cloud-based blockchains are becoming a thing…

I’m confused as to how they’re decentralized.

Sure, you can host your blockchain on an Amazon server and invite other nodes to participate. And you can share control of the data input. But you can do that on a database, too, with permissions and write access.

But, where’s the decentralization? And where’s the robustness? The server goes down and the blockchain is offline? No matter how many redundancies Amazon has built in, it does not sound as secure as a non-cloud blockchain with, you know, distributed nodes.

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From an article in Colossal:

“How is it OK to paint a wall one dull color of paint? But it’s illegal to paint the same space with multiple colors.”

A very good question…

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dublin-1

Murals by Subset, via Colossal

Bits and stuff: April 15, 2018

Hi everyone! Earlier this week I had a brief escape to a city in the clouds…

canary wharf

(Canary Wharf in London, if you’re wondering)

…and came home to find half the trees being cut down on the street my apartment looks out over. Why? Apparently they’re “not safe” and the powers-that-be are worried that, in a rough storm, they might fall over. I’m not sure what’s more disconcerting: that they’re preparing for “rough storms”, or that beloved trees that have been struggling to grow for 40 years are not even being given a chance to show their sturdiness. Safety is important. But so are trees. And Madrid is poorer for their loss.

trees

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This article by Rachel Rose O’Leary highlights a fundamental tenet of capitalism: it is naturally monopolistic.

Apparently crypto communities are up in arms over the arrival of ASIC (Application-Specific Integrated Circuit) chips, which give their owners an advantage in mining certain cryptocurrencies. Developers and users of ethereum, zcash and monero fear that the advantage that the new chips can give miners of these cryptocurrencies will upset the delicate balance in their decentralized ecosystems.

And they’re right, it’s likely that the result will be increased centralisation, as those with money (to spend on the chips) end up producing a greater number of tokens and thus making more money, which means they can buy more chips, and so on.

This freedom – to spend money on making more money – is capitalism’s centralizing force. And while factories and transportation networks have certain physical barriers that could slow the centralisation down, the digital world moves faster. Network effects are realised in a shorter time frame.

Yet this is antithetical to the crypto spirit of decentralized finance. Hence the existential conflict. To stop it from happening, strict rules will be needed. But rules decided by whom? Invariably, those that make the rules end up controlling the system. Not exactly decentralised.

It’s not often we get to watch capitalism at work in a petri dish. And the accelerant of networks and social media will make this expected plot twist particularly edifying to watch.

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The reveal that several projects are contemplating launching an ICO on codebases incubated within the Hyperledger consortium is further evidence of the spread of non-ethereum ICOs…

The Sovrin Foundation, creator of the Hyperledger Indy codebase for digital identity management, is planning a crypto token launch this summer.

And PokitDok, a healthcare API platform exploring blockchains, is looking into launching an ERC20-based token on top of Sawtooth, another Hyperledger codebase. ERC20 is a template designed to simplify the issuance of digital tokens on ethereum – this is the first I’ve heard of it potentially being used on other blockchains.

While that in itself is fascinating, taking this forward, I’m intrigued as to what it could do for interconnectivity…

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christian nagel

by Christian Nagel, via Google Arts

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JP Koning sets out an excellent description of what a digital central bank currency could look like…

“Like banknotes, these digital tokens are anonymous and untraceable. To make use of them, people don’t have to register for an account. Rather, the tokens are held independently on one’s device, sort of like how paper money is held in one’s wallet without requiring any sort of registration with the issuing central bank.”

… why it wouldn’t destabilize the system…

“…imagine a world with digital currency. In the event of a panic, customer redemption requests will be instantaneously granted by the bank facing the run. But that same speed also works in favor of the bank, since a request to the central bank for a top-up of digital currency could be filled in just a few seconds.”

… and why it probably wouldn’t work.

“…what if there just aren’t that many people who care about online privacy? Countries like Sweden, where banknote usage is plummeting, give credence to this concern while surveys of cash users in the eurozone show that anonymity is not terribly important to them.”

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I’m far from a cryptocurrency maximalist, and am more interested in what blockchain’s can’t do than what they can, so it would be fair to think that I’m enjoying the growing chorus debunking the hype of both.

To some extent, yes, but I am now getting increasingly irritated by a new kind of hype: articles that decry blockchain’s futility and crypto’s lack of fundamentals, without understanding either. There are many smart realists out there (you’ll see me retweeting their stuff in approval). But as the hype cycle moves into the trough of disillusionment, others are jumping on the negative bandwagon without having the credentials or depth of knowledge to present arguments that hold up to either fact-checking or logical scrutiny. I’m not naming names because they don’t deserve the publicity – and that, more than reasoned debate, seems to be more what they’re interested in.

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Dramatic interior shots by Spanish artist Lino Lago – via Colossal

Stock exchanges, cryptocurrency trading and trying harder

Until a few years ago, Avis – the second-largest car rental firm in the US for much of the last half century – ran an iconic advertising slogan: “We’re No. 2. We Try Harder.” Given my soft spot for underdogs, I thought it was brilliant. Embrace reality, turn a negative into a positive and move the goal posts.

avis

I was reminded of that this week when Germany’s no. 2 stock exchange revealed a planned launch this autumn of a cryptocurrency trading app. Börse Stuttgart’s subsidiary Sowa Labs has developed a mobile platform that enables clients to trade bitcoin, ethereum, litecoin and ripple. Onboarding will supposedly take minutes, and although initially only available in German, apparently an English language version is in the works (the company also runs the second-largest stock exchange in Sweden). Perhaps even more interesting, the app will use “artificial intelligence” to sift through crypto Twitter and select those tweets that best indicate price trends (can’t wait to see that).

While a distant second to Deutsche Börse in terms of turnover, Börse Stuttgart is – according to its website – the market leader for exchange trading in corporate bonds (as opposed to over-the-counter trades, which dominate volume). What’s more, and this is especially interesting given its cryptocurrency strategy, Börse Stuttgart is Germany’s leading exchange for retail investors. Its website claims:

“Ground-breaking ideas for the benefit of retail investors are a tradition at Boerse Stuttgart.”

Although founded as far back as 1861, it seems to have been eager to embrace new technologies, offering “best size” and “best price” practices for the retail market, long before most of its peers. And now, cryptocurrency trading.

As well as the empowering idea of the second largest having to try harder, another underlying force is at work here, one that we’ve seen replicated across the finance sector: the incumbents are the best positioned to take new technologies mainstream.

The economist Joseph Schumpeter posited, almost 100 years ago, that large firms are more enablers than barriers when it comes to technological development. Their reach and economic power gives them a huge advantage when it comes to “appropriating” technology, further consolidating their position and further centralizing the sectors in which they operate.

True, the landscape has changed. The growth of computing and open source technologies has distributed access to new ideas among a much broader range of actors. Startups are gaining significant clout, and are likely to become the new incumbents as market structures shift.

Yet, the current incumbents seem to be aware that embracing new technologies is not only good for the bottom line, it could also become a matter of survival. And, in the process, the technologies reach a wider audience.

We’re seeing this in the cryptocurrency sector. Most commercial banks, central banks and stock exchanges are running blockchain trials and designing proofs-of-concept. And in cryptocurrencies, while many institutions are still keeping a cautious distance, a few brave innovators are incorporating new services to improve access to a market that is obviously not going away.

Is this just another case of a financial institution using “cryptocurrency” as window dressing to enhance its profile, or is there significant demand amongst Börse Stuttgart’s retail client pool for cryptocurrency trading? According to an internal survey, there is – and the company’s record on innovation and retail focus points to a genuine interest in improving the customer experience when it comes to a new asset.

Beyond the easier access to cryptocurrencies, a more subtle change could result: the increased perception that bitcoin, litecoin and peers are neither a threat to the established system, nor a clandestine investment opportunity. The backing of a large and reputable financial institution brings what was once a niche activity into the hubbub of mainstream markets – and, it perhaps further entrenches these assets’ role as trading vehicles rather than decentralized enablers or financial disruptors.

Bits and stuff: April 8th, 2018

An excellent article from Jemima Kelly of the FT Alphaville team on Vitalik’s “testing” of the ethereum waters with his April Fool’s “joke” about a hard cap on supply. She also talks about how hard caps are pointless when open-source chains can be forked and ICOs can be spun out on whim.

Of course, the ethereum community is split on whether a hard cap would be a good idea or not.

Hmm, conflict in a crypto community over the best way forward? This leaves us wondering when talk of an ethereum fork will materialize – capped ether vs non-capped ether – even though the possibility of a fork makes the cap pointless… But, it’ll be an interesting experiment to watch.

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This longform article in The Guardian – “The demise of the nation state” by Rana Dasgupta – should be included in every history syllabus from high school up.

“When we discuss “politics”, we refer to what goes on inside sovereign states; everything else is “foreign affairs” or “international relations” – even in this era of global financial and technological integration. We may buy the same products in every country of the world, we may all use Google and Facebook, but political life, curiously, is made of separate stuff and keeps the antique faith of borders.”

It’s an epic, zoom-out look at the rise of populism, pointing out that it’s not just the west, and it’s not just a national problem.

“The most momentous development of our era, precisely, is the waning of the nation state: its inability to withstand countervailing 21st-century forces, and its calamitous loss of influence over human circumstance. National political authority is in decline, and, since we do not know any other sort, it feels like the end of the world.”

The author talks about “post-national solidarities”, and the impact on human life (and death):

“Since 1989, barely 5% of the world’s wars have taken place between states: national breakdown, not foreign invasion, has caused the vast majority of the 9 million war deaths in that time.”

And, of course (this is The Guardian, after all), financial deregulation is part of the problem:

“Today’s failure of national political authority, after all, derives in large part from the loss of control over money flows… These fleeing trillions undermine national communities in real and symbolic ways.”

Does this mean that finance is becoming more centralized (concentrated in the hands of the wealthy), or decentralized (ignoring borders)? Will cryptocurrencies change this by putting more of this borderless wealth in the hands of anyone, or will it entrench the have/have not divide?

The whole article is worth reading for its take on citizenship, the EU, international law and global financial regulation.

“There is no reason to heed those interested parties who tell us global financial regulation is impossible: it is technologically trivial compared to the astonishing systems those same parties have already built.”

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This… is brilliant. Simple yet effective, and possibly enough to get people to think differently without them noticing.

pejac

By Pejac, via Colossal.

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At first I though this piece (by Maryland governor hopeful Alec Ross) was political fluff, perhaps, but nevertheless awesome… Now I’m perturbed. “Blockchain as a political tool” not only buys into the fluff but also perpetuates it, elevates it to slogan status and entrenches misconceptions and misaligned expectations.

A pro-innovation stance is good – but if misdirected will end up wasting money and setting progress back by years.

As an example, just take a look at the news that a bill that would allow residents of the US state of Georgia to pay their tax in cryptocurrency has stalled, due to “a lack of understanding”. It will have to be resubmitted in January 2019.

Meanwhile, in Arizona, a similar bill is again moving forward after stalling earlier in the year. Interestingly enough, the revision is removing “bitcoin” as the specified cryptocurrency. I seriously doubt that this will help it get passed.

There’s so much more to unpack here, from why the lack of understanding persists, why anyone would want to pay taxes in cryptocurrency and how, if passed, this could affect the nature of asset and the growth of the sector.

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It’s hard to draw a big-picture conclusion from the Wall Street Journal’s provocative article on the diminishing weight of auditing in the Big Four’s revenue. While the easy thing to do is to jump up and down chanting “blockchain will replace auditors!”, that’s actually far from clear. Sure, the technology affords increased transparency and immutability of data. But, “garbage in garbage out”, so verification of the data will still be a valuable service.

In line with both this and the shift towards consulting fees, most of the big auditing firms have their own blockchain departments. These could benefit from the trend of increased outsourcing of technology builds.

However, the impact of the spreading custom (sometimes mandated by law) of changing auditing firms every few years is unclear. Will it boost technology spend, as proprietary platforms are more frequently replaced? Will it make spending more selective, since the maintenance (and replacement) costs will be significant? Or will it increasingly push development towards open-source solutions that don’t depend on the chosen provider?

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I’m far from a cryptocurrency maximalist, and am more interested in what blockchain’s can’t do than what they can, so it would be fair to think that I’m enjoying the growing chorus debunking the hype of both.

To some extent, yes, but I am now getting increasingly irritated by a new kind of hype: articles that decry blockchain’s futility and crypto’s lack of fundamentals, without understanding either. There are many smart realists out there (you’ll see me retweeting their stuff in approval). But as the hype cycle moves into the trough of disillusionment, others are jumping on the negative bandwagon without having the credentials or depth of knowledge to present arguments that hold up to either fact-checking or logical scrutiny. I’m not naming names because they don’t deserve the publicity – and that, more than reasoned debate, seems to be more what they’re interested in.

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Northern lights or not, this looks like a gorgeous place to spend a night (I’m assuming it has heating…)

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Iceland’s Panorama Glass Lodge, via MyModernMet.

Bits and stuff: April 1, 2018

Happy, happy April Fool’s Day!

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I’ve been doing some digging into the top-down approach of blockchain research – in other words, what various governments are doing to support development. It’s disconcerting, because – just judging from the headlines (I know, I know, facts and figures to follow) – the US and Europe are not dedicating nearly as many resources as others (cough, China and Russia).

This article from Politico looks at Europe’s attitude towards another transformational technology: artificial intelligence. And the conclusion is alarming.

“With advanced image recognition, data analytics, prediction systems, military brain science and unmanned systems, devastating wars might be waged and won in a matter of minutes.”

That much we knew. It’s when we compare China’s approach:

“In a three-year action plan to develop AI, published by China’s Ministry of Industry and Information Technology in December 2017, Beijing laid out a goal of being able to mass-produce neural-network processing chips by 2020. The country’s cloud computing companies are racing to deploy increasingly sophisticated services featuring machine learning and AI.”

… to Europe’s:

“The EU’s strategy is organized around three concerns: the need to boost Europe’s AI capacity, ethical issues and social challenges. Unfortunately, even the first dimension quickly turns out to be about “European values” and the need to place “the human” at the center of AI… In a 14-page document, only two pages are devoted to ways of boosting Europe’s AI capacity.”

… that things start to get… alarming.

“In a passage perhaps aimed at responding to the Chinese gambit for AI supremacy, the Commission intends to argue — or so it is written in the current draft — that the EU “can position itself as a leader in the international reflection on AI.” Let others lead on AI. The EU will be able to reflect on it better than anyone else.”

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Following on from the above and from what I mentioned in the previous post – the increasing use of technology as a tool for power – this article from the Financial Times is potentially alarming.

“Data collated by Thomson Reuters from the World Intellectual Property Organisation (Wipo) database showed that in 2017, more than half of the 406 blockchain related patent applications were from China… China filed 225 of the blockchain patents last year and 59 in 2016, followed by the US (91 in 2017 and 21 in 2016) and Australia (13 last year and 19 in 2016). “

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It’s starting to feel like Spring…

by Amanda McCavour, via Colossal
by Amanda McCavour, via Colossal

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This piece in Reuters – “Wall Street rethinks blockchain projects as euphoria meets reality” –  is not only good journalism (getting stories that are both interesting and ignored), but also a refreshing reminder that we should be reporting about the cancellations and disappointments – they are, after all, more newsworthy these days than yet another pilot doing the same things as before but better. But for some strange reason, the protagonists are much more eager to talk about their importance, creativity and success than they are about their failures.

Media, on the whole, tends to focus on what innovators want us to know. We take the easy option of relying on press releases and conference leads, and forget to follow-up on projects that didn’t happen and deadlines that weren’t met – it’s understandable, even, since few outlets have the resources to keep up with everything. It’s a pity, though, and I’m sure we could do better.

And I am beginning to believe (later than many) that, yes, blockchain is in the typical hype-cycle slump. Good. Finally. Now is when it gets interesting.

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A stunning display of post-crisis data from the Wall Street Journal that shows that neoliberalism is not only still alive but doing very well, thank you…

“Analysts say the financial crisis highlighted the risk of concentration. But 10 years later the trend of larger firms is still intact.”

More than intact, according to this graph:

WSJ 2

“The financial sector is again becoming a bigger piece of the economy. That could translate to future risks for borrowers and consumers in another crisis.”

And it’s not that GDP has fallen… (It would be interesting to see a breakdown of finance vs insurance, and how much of that is shadow banking.)

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“Regulations are tougher, but the regulators enforcing them often come from the industries they oversee.” Omg…

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The display of graphical information in finance is getting better and better…

Via The Economist - click on the graph to go to the article, and check out the scrolling effects...
Via The Economist – click on the graph to go to the article, and check out the scrolling effects…

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For refreshing clarity and a cathartic amount of swearing, this is a damn good read: “I Survived the Eternal Boy Playground, But Will Puerto Rico?”

 

GDPR, blockchain and the technological arms race

A “blockchain killer” in the house? The press, who never knowingly misses an opportunity for drama, is making much of the upcoming clash between blockchains and EU regulators over the new data rules (GDPR), due to activate just over a month from now.

On the one hand, the right of all EU citizens to insist that their data is removed does mean that blockchains can no longer be immutable (in other words, they can no longer be blockchains).

But on the other hand, most of the private blockchains that enterprises are building on are not actually blockchains – they’re distributed ledgers, and they can be mutable. Those that are building on cryptographic systems based on chains of blocks, yup, that might be more of an issue.

Which is a drawback, since there are compelling use cases for public ledgers, and the technological development going on behind the scenes will – if allowed to continue – fuel further use cases and functionalities.

Although the work would most likely go ahead anyway. On the public, decentralized blockchains – they’re not “owned” by anyone. So just who is the European Union going to fine?

Apps that are run by a centralized organization might be easier to target – but there’s not a lot of clarity over control of the data. In a cloud server, for instance, if the company that put the data in there doesn’t eliminate the information, Amazon or Microsoft could step in to do so. In a public, distributed database where no particular entity has control over what goes in, who would the authorities insist take it out?

What’s more, switching geographical base is getting easier, with other jurisdictions clamouring for the talent and investment. All a clampdown would achieve is an exodus from Europe, and a missed opportunity to participate in greater efficiencies and new collaborations.

This highlights the futility of the GDPR legislation, and how it hands technological supremacy to other geographical areas of influence. It not only further entrenches the power of existing silos at the expense of smaller businesses (due to the considerable compliance costs, which the larger companies should have no problem absorbing); it also inhibits innovation in new data structures that actually have the power to better distribute processes and utility (and I’m not just talking about blockchain).

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(gif via Tenor)

At the same time, it could spur research into new ways of handling online information, including the possibility of sovereign identity. Rather than just an interesting concept with potentially empowering consequences, new identity management could become an economic imperative.

The goal is becoming increasingly important, given that Europe is falling behind. A think tank (with the aspirational name JEDI, for Joint European Disruption Initiative) has called the region to task for being too slow and thinking too small in its technological development. Misguided initiatives that ineffectually value privacy over progress, and punitive tax measures that will have the net effect of reducing collections, further entrench the disadvantage.

As recent headlines (North Korean hackers, Chinese takeovers and belligerent National Security Advisors, to name just a few) highlight, technology is an increasingly powerful tool in the race to economic (and military) supremacy. Barriers to development – however well-intentioned – could end up deciding the winner. Even leaving aside military outcomes, economic growth for all becomes a matter of survival as deepening inequality shakes political establishments to their core.

So, it’s probable that GDPR will back down, and allow blockchain development – on both public and private ledgers – to continue. That would be good news, on many levels. We have no way of knowing where the impact of research and pilots will be most felt, but we can be certain that the progress will be felt in areas well beyond the bounds of the crypto sector.

Rather than European data privacy laws squelching blockchains, it may be that blockchains squelch GDPR.

 

Bits and stuff: March 25, 2018

Rather than focusing on what to do about cryptocurrencies, the G20 (comprised of the world’s 20 largest economies) has decided to take a step back and first decide what information they need. This is smart, and may lead to a deeper understanding of what cryptocurrencies are and where their impact may be felt. It is also going to buy them some time – and in the accelerated pace of blockchainland, a lot can happen in a short period. So, a wait may be frustrating to some, but informative to all.

This is huge – it’s potentially a first step towards a global approach to cryptocurrency regulation, befitting a global phenomenon. It seems that legislators are waking up to the futility of playing whack-a-mole with the slippery concept of decentralized, internet-based assets. And in this climate of jurisdictional positioning (“We’re blockchain friendly! Domicile here!”), a coherent approach will pave the way for the solid construction of a new payment rails and business structures.

The role of non-G20 economies is likely to become increasingly important in the development of cryptocurrency services. With smaller jurisdictions (Singapore, Switzerland, Malta) offering logistical and legislative support in exchange for capital flows, ecosystems and high-level immigration, rather than a blanket approach we may see a re-balancing of crypto influence.

By the time the G20 does start to make concrete recommendations, the entrenchment of cryptocurrencies in the world economy may be too big to walk back – in which case, anything that seems like a clamp-down will be met with a flow towards non-G20 areas. Or, it may still be on the fringes, in which case focus will shift to new “threats” to financial stability.

While it does its background research, the group has pledged to apply the standards of the Financial Action Task Force (FATF) – an intergovernmental body formed to fight money laundering and terrorist financing – to cryptocurrencies. It’s not yet clear what this actually means – everyone was doing that anyway (investigating money laundering suspicions, confiscating illicit funds, etc.)

It’s interesting that Brazil (according to reports) has said that it will not regulate cryptocurrencies. This may be jumping the gun – and it’s curious that Brazil feels that it has a better grasp of the potential impact than its illustrious colleagues.

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Jill Carlson highlighted an inherent weakness in most ICO models: when the token price goes up, the project sells tokens to raise cash and becomes less exposed to the token’s price. It will therefore benefit less from future price increases.

Also, if the price goes down, it may find itself buying tokens in the market to support the price – and so it’s exposure to future price slumps will be greater.

This is the opposite to sensible portfolio management principles – in bond holdings with standard “convexity”, for instance, if interest rates fall, you will get larger and larger price increases. But if interest rates rise, your price falls will get smaller and smaller. The upside outweighs the downside. That is good.

“Short” convexity – what most tokens seem to imply – reduces upside and exacerbates downside. That is not good.

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Favourite tweet of the week:

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The Financial Times published an interesting take on the battle for crypto friendliness – and the particular risk that Switzerland runs of revisiting its hard-lost reputation as being a haven for “dirty” money…

What’s more, it turns out that all is not rosy for crypto startups in the Valley – they still can’t interact with local banks, who distrust their earnings.

And, the ability to use bitcoin to pay for public services is “clearly a marketing gag”, according to a local councillor.

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This headline, seen in SoraNews:

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The story itself contains so many gems that I really don’t know where to begin.

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Jon Evans in TechCrunch points out that blockchain projects are not going to replace existing systems any time soon. But if they offer an appealing alternative, they can be viable, and grow organically.

“If things keep going as they are, maybe you won’t ever have to go through the Wall to get to the people on the other side. Maybe, eventually, they’ll come to you.”

So, enough with the overblown ambition and inflated egos – they damage the “brand”, which is an alternative way of processing information, appealing to a (for now) relatively limited subset of users. That’s probably enough – and the scope for disappointment is more limited.

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The possibility of XRP futures is intriguing, but the CEO of LedgerX is right – a big barrier to institutional investors being interested in this is the possibility of market manipulation, with so much of the outstanding float in the hands of Ripple itself.

ETH futures sound like a more interesting bet. I wonder why we’re not hearing more about them.

— x —

With blockchain platform announcements this week from both Google and IBM, it might seem that the “standardisation” of distributed work is here. Not yet – it’s early days still. But the increasing competition in the “cloud blockchain” space will be interesting to watch. Let’s assume that Amazon is.

— x —

A report in Nikkei Asia on North Korea’s cyber activities sheds light on the rash of attacks on cryptocurrency exchanges in Asia, including the recent hack of Coincheck in Japan. According to a defector, North Korea has a special unit dedicated to procuring foreign cash for purchases relating to weapons programs. In this case, “foreign cash” includes cryptocurrencies.

“In May 2017, a ransomware virus swept 150 countries. In South Korea, many cryptocurrency exchange operators have been hacked; some have lost their digital coins. South Korean intelligence even suspects that North Korean hackers were behind the big heist from Japan’s Coincheck in January.”

A new type of warfare.

— x —

The minimalist, attention-to-detail genius of Tanaka Tatsuya… Via Instagram.

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tanaka tatsuya

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Blockchain speed bumps

by Alex Iby for StockSnap
by Alex Iby for StockSnap

Sigh, thought so.

The DTCC (the US post-trade giant) hosted a fintech symposium earlier this week, in which blockchain technology was one of the main points of discussion. According to CoinDesk’s report, the atmosphere – as evidenced by the event’s keynotes and panels – could be described as “reserved enthusiasm”, “hopeful realism”, or perhaps even “putting on a brave face”.

Several of the speakers pointed out the complexity of the systems currently in place, the limitations of blockchain technology, the risk inherent in public blockchains and the colossal task of getting regulators around the world to agree on a constructive way to protect users.

One intriguing detail revealed is that the unveiling of the DTCC’s new platform will be delayed. The original press release promised a launch in early 2018. CEO Michael Bodson let drop in a LinkedIn post last December that it would be late 2018. Now it’s looking like it will be in 2019, at least a year late. This is where the sigh comes in, because it will probably end up being even later than that.

I wrote about the scope and advantages of the DTCC project a few months ago, but to recap: the decision to go with a blockchain-powered platform was based largely on the need for 1) transparency – where all participants could share the “golden copy”, the main database from which others draw their information; and 2) efficiency – reducing settlement times, and streamlining administration with smart contracts. The use-case makes sense.

But blockchain is complicated. Securities markets are complicated, particularly derivatives. And project planning is complicated, especially when you’re dealing with new territory and uncertain infrastructure.

The DTCC’s project is far from the only one that has suffered setbacks. Going through the slew of announced banking blockchain projects from the past year, the number of missed deadlines is overwhelming. Many projects start out with high hopes and effusive press releases, only to get quietly shelved as the obstacles prove to be expensive.

Often it’s because limitations of the technology are discovered as building progresses. The technology is young, after all. The DTCC platform was originally to be based on ethereum (not even four years old), with Solidity as the smart contract language. Yet the team soon discovered that the DTCC application needed something more sophisticated than Solidity would allow. While the firm has not (to my knowledge) specified what the new solution would look like, it is an investor in Digital Asset Holdings, which has developed a new smart contract language.

Sometimes setbacks originate where regulation and applicability meet, an area fraught with uncertainty. Getting the authorities to sign off on something that hasn’t been built yet is a challenge. Beyond that you also have the need to agree on regulatory reporting requirements.

Technology changes are extremely difficult, and delays are common. The risk is that the longer the delay, the more complicated the project gets as additional requirements are inserted by regulators or stakeholders, and as technology moves on. With delays come additional costs, and there may come a point when the change is no longer a good business idea. The infamous upgrade of the London Stock Exchange system in the 1980s accumulated a delay of over 10 years – in the end, it was scrapped after sinking over £70 million (£140 million in today’s money). Could the same thing happen here?

I hope not. The work being done is important, and points to a new financial system that has the potential to solve current roadblocks and cost barriers. We can’t underestimate the knowledge contributed to the blockchain sector, even if the work ends up being private (although the DTCC’s technology partner Axoni has said that it plans to open source the project once completed).

The main lesson is to not get giddy with excitement over big pronouncements – they are far from a victory. They are, however, a validation of an idea, and a commitment to further the sector’s development. We also need to be able to take setbacks in our stride, lower our expectations and not point to delays as evidence that we are now in the “disappointment” phase of the hype cycle. Even if the high-flyers end up pivoting, the amount of focus and progress in the sector shows that others will be willing to pick up the mantle and try a different, perhaps more modest approach.

Given the strong amount of work still going on, and the constructive tone of high-level conversations – such as those at the DTCC event – we can take the delays as breathing space, and settle back to watch hard-won progress slowly emerge. Better late than never.

Bits and stuff: March 18, 2018

It’s been a staggering week for corporate “misbehaviour” – the fallout from the Theranos hubris, and the revelation that Cambridge Analytica knowingly used our social media information to manipulate us. The latter one is particularly terrifying, and will probably trigger a wave of calls for tighter regulation of the data collectors.

It could also trigger a further push (already underway in Europe with GDPR and PSD2) for data handling to be more transparent and, if possible, decentralized. Obviously blockchain technology has a potential role to play in that. But the more interesting aspect is the broader conversation about who should own our data. This is going to trigger a much bigger change in how business is run than most of us realise.

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Google’s decision to ban ads for cryptocurrencies and token sales, taken on the heels of Facebook’s similar move, is harsh, but good news for the sector. While the decent ads get unjustly washed away with the scammy ones, the necessary cleansing of the garbage that bombarded anyone interested in the space will hopefully “reset” the sector’s reputation for innovation rather than fraud.

True, it may lower the income of sector media that showed programmatic ads on their sites. But at least they will no longer find themselves inadvertently showing bad ads. That will give the sector another cleansing boost.

So, Twitter next?

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I was in Stockholm this week for a post-trade conference, talking about the potential impact of cryptocurrencies on hedge funds. (More on that to follow). Since I had some time before my flight back home on Friday, I took myself off to the Photography Museum, where they had an exhibition of Christian Tagliavini’s surreal and nostalgic work. The work that went into composition and the technique produce works of whimsy and nostalgia, almost like rennaissance paintings.

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If you find yourself in Stockholm, I wholeheartedly recommend a visit. Charming and hypnotic. And, the café on the top floor has breathtaking views.

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Did you see John Oliver’s bitcoin episode? Clever and incongruously deep, as usual. As CoinDesk points out, however, his attempt to draw a parallel between bitcoin and Beanie Babies shows that he still has some way to go in understanding the economics behind the largest cryptocurrency.

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TechCrunch published an excellent essay by Jon Evans on why social media seems like such a toxic environment.

“Of course the Internet was always full of awful. Assholes have been trolling since at least 1993…. The Intransigent Asshole Theory holds that the only thing that’s changed is that more assholes are online and they’ve had more time to find each other and agglomerate into a kind of noxious movement.”

This point seems, in retrospect, startlingly obvious:

“Adopting [Taleb’s] argument slightly, if only 3% of the online population really wants the online world to be horrible, ultimately they can force it to be, because the other 97% can — as empirical evidence shows — live with a world in which the Internet is often basically a cesspool, whereas those 3% apparently cannot live with a world in which it is not.”

In other words, we tolerate the trolls, so they end up winning.

“Only ~3% of people are truly terrible, but if we are sufficiently compliant with their awfulness, that’s enough to ruin the world for the rest of us. History shows that we have been more than sufficiently compliant.”

Online, anyway.

— x —

They excitement around the blockchain-based tally of votes in the Sierra Leone election is bewildering. Sure, it shows that votes can be registered on a blockchain network. But we already knew that.

If I understand correctly, the votes have to be manually registered. In other words, someone from the company handling the software – Agora – takes the vote and inputs it into the platform. How is that not centralized? How is that not vulnerable to manipulation? What, seriously, is the point?

Ah, I hear you say, this platform is transparent – anyone can see the votes. This will go a long way towards restoring trust. Why? Suspicion is a hard thing to get rid of – and openly revealing potential points of failure (those inputting the data) isn’t going to do it.

Apart from the question of how do we guarantee the integrity of the data handlers, how is manipulation through identity fraud avoided?

What’s more, it’s a permissioned blockchain. A centralized, permissioned blockchain. Why not just use a distributed database?

Another question, how will electronic voting platforms – of any sort – overcome the notoriously poor connectivity in the region?

True, it’s a start – and if, as they say they intend to, the developers work on removing middlemen by allowing citizens to vote directly on the platform, with biometric data, then that will be a potentially more worthwhile system. But to get everyone biometrically identified will be a massive undertaking, and there doesn’t seem to be the political appetite.