Monthly Archives: June 2017

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Russia’s Vnesheconombank Reveals Blockchain Product Strategy

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Russia's Vnesheconombank Reveals Blockchain Product Strategy

  

A state-owned development bank in Russia

has revealed its plans for launching products built around blockchain. Vnesheconombank, an institution backed by the Russian government, is focusing its efforts on the areas of project management and supply chain finance, according to a report by Sputnik International. The publication quoted Vnesheconombank's chairman, Sergey Gorkov, who appeared this week at the St Petersburg International Economic Forum.

What they're doing: 
Gorkov's comments, as quoted, reveal a kind of two-prong approach: developing institutional knowledge and pursuing applications – trade finance in particular – that have captured the attention of a wide range of financial firms worldwide.

Here's how Gorkov framed the bank's project management initiative, according to Sputnik:

"When we started to think about how to manage projects efficiently, we realized that there is no platform. Everything that we had became obsolete. We realized that the blockchain is a good fundamental and qualitative platform for the future."

He said that the bank had since pursued a pilot project centered around the use case, with further iterations to follow. "We are launching the first prototype in terms of project management this fall," he told the publication.

Why it matters: 
That a state-backed bank in Russia is moving to launch services around the tech is a notable one – but perhaps not an altogether surprising one given the pace of blockchain development in the country's finance sector.

The unveiling comes months after Russia's prime minister, Dmitry Medvedev, called for more research into the tech by a pair of government agencies. Government officials also said earlier this year that they expect to develop blockchain-specific regulations, looking to an introduction by 2019. That work comes as Russia's central bank drafts new rules around bitcoin and digital currencies, with an eye to regulate them as kinds of digital goods.

Chuck Reynolds
Contributor
Please click either Link to Learn more about – TCC-Bitcoin.

Alan Zibluk – Markethive Founding Member

Markethive

Blockchain consortium R3 raises $107 million

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Blockchain consortium R3 raises
$107 million

  

People may well remember 2017 as the year that blockchain broke.

After years of development and flickering just outside of mainstream consciousness and acceptance, record high prices for the most popular blockchain-based cryptocurrencies Bitcoin and newcomer Ethereum and an embrace of the technology’s core principles by some of the world’s largest institutions may mean that blockchain technology is ready for its close up. Nothing illustrates this more clearly than the just-announced $107 million financing for R3, the blockchain consortium that includes some of the largest financial services firms and technology companies in the world.

Leading investors included SBI Group, Bank of America Merrill Lynch, HSBC, Intel and Temasek, the company said in a statement. R3 represents the largest consortium of global financial institutions working on developing commercial applications for the distributed ledger technology that’s at the heart of blockchain technology. In addition to the big names that committed the most capital, R3 pulled in additional commitments from ING, Banco Bradesco, Itaü Unibanco, Natixis, Barclays, UBS and Wells Fargo.

R3, which opened the first tranches of the company’s planned $200 million financing exclusively to members of the consortium, is one standard-bearer for the mainstreaming of blockchain technology. Indeed, the company already counts among its customers the government of Singapore, the Bank of Canada and other national financial institutions. The company said it will use the funds to accelerate technology development and grow strategic partnerships for project deployment. R3 has its own proprietary ledger that can be used to develop applications, and it also supports an infrastructure network for financial services firms and technology companies to build their own ledger-based applications and services.

“While still in its infancy stages, the emergence of distributed ledger technology comes at a time when the financial services industry is poised to further embrace technological change and efficiencies,” said C. Thomas Richardson, the managing director and head of market structure and electronic trading services at Wells Fargo Securities, in a statement.  That sentiment was echoed by other financial services executives whose firms were members of the R3 consortium. “Innovation in digital technologies is reshaping the banking industry, and this investment is reflective of our belief that distributed ledger technology and smart contracts have the potential to significantly enhance capital markets infrastructure. R3’s collaborative approach is key to the progress of this technology,” said Andrew Challis, managing director of strategic investments at Barclays.

Not all big banks and financial services firms have embraced R3. Goldman Sachs and Santander both dropped out of the consortium, perhaps figuring they’d be better off going their own way. Where R3 has really shined has been in getting governments comfortable blockchain-based applications. Their approach of enlisting banks and financial services companies for projects is light years from the more subversive mindset of some of the developers of the original and the largest blockchain protocol, Bitcoin.

As some investors and entrepreneurs see it, there’s room in the market for both the private blockchains developed by communities around Bitcoin and Ethereum, and the sanctioned corporate ledgers that companies like R3 are developing. For now, the technology that R3 is developing is focused on business applications like verifying transactions between banks, or automating the things like the establishment of the London Interbank Offer Rates. In the future, the company’s technologies could touch consumers more directly — through the creation of a digital fiat currency. While that may be somewhere far off down the horizon, with the company’s connections to the banking industry and to national governments, it’s not beyond the pale.

Chuck Reynolds
Contributor
Please click either Link to Learn more about – TCC-Bitcoin.

Alan Zibluk – Markethive Founding Member

Markethive

Eight Reasons To Be Skeptical About Blockchain

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Eight Reasons To Be Skeptical About Blockchain

Given the turbulent, even frothy environment for disruptive digital technologies, one novel entrant promises to be among the frothiest: blockchain. The secure distributed ledger technology behind Bitcoin, blockchain has exploded out of the realm of the dubious cryptocurrency into a hype-driven category of its own. VC money is pouring into numerous blockchain startups. IBM IBM +0.59% is betting the farm on the technology. Pundits around the globe are calling for blockchain to reinvent everything from equities trading to charitable giving. And yet, aside from Bitcoin itself, real-world implementations of blockchain are few and far between. Has the hype exceeded the reality?

Let’s see what a number of skeptics have to say.
 

  

Secure ledger from an earlier century

Blockchain is a Solution Looking for a Problem

As blockchain exploded from its cryptocurrency roots, it quickly took on new life, as proponents rushed to figure out what else it was good for. “‘Blockchain is a solution looking for a problem’ is a sentiment that we heard several times while conducting this research—a fair representation of the reality,” says Axel Pierron, founder and managing director of financial consulting firm Optimas LLC. “Rather than investing in ‘catch all’ blockchain-related initiatives, the industry should focus its attention on evaluating the various solutions that can address the issues that need to be solved.”

The Open Data Institute also warns about selecting the ‘right tool for the job.’ “We think that the government should go further and think about how it can convene sectors (such as finance, agriculture, or health care), identify common challenges in those sectors and then determine which technology approaches – whether blockchains or not – are the most appropriate in helping to address them,” the ODI blogs. “Blockchain technology is a new tool in our toolbox. We need to use it when it is the right tool for the job at hand.” (Emphasis in both paragraphs is theirs.)

End-Users Don’t Really Want to Use Blockchain

It’s difficult enough to use Bitcoin for any day-to-day task, let alone blockchain. “But still, eight years after Bitcoin launched, Satoshi Nakamoto remains the only creator to have built a blockchain that an appreciable number of ordinary people actually want to use,” opines software engineer Jon Evans, principal at HappyFunCorp and columnist for TechCrunch. “No other blockchain-based software initiative seems to be at any real risk of hockey-sticking into general recognition, much less general usage.”

Perhaps a proof of concept would help? Blockchain aficionados have implemented an online trading card game they call the Rare Pepe Game to explore the potential of the technology. Even this simple example, however, proves wanting. “[The Rare Pepe Game] also shows how a game can be built on a blockchain with virtual goods and characters and more,” explains Fred Wilson, managing partner at Union Square Ventures. “And it shows how clunky this stuff is for the average person to use. Just playing around with this over the last few days showcases to me all of the technical challenges that blockchain technology still has to overcome before it can become mainstream.”

Blockchain Will Increase Transaction Costs

By disintermediating financial institutions, so the reasoning goes, multiple parties can conduct transactions seamlessly, without paying a commission. However, cost savings are dubious. “Moving cash equity markets to a blockchain infrastructure would drive a significant increase of the overall transaction cost,” Pierron continues. “Trading on a blockchain system would also be slower than traders would tolerate, and mistakes might be irreversible, potentially bringing huge losses.”

Unlikelihood of Sufficient Adoption

The promise of blockchain in large part depends upon enough parties using the same implementation of the technology – a classic example of the network effect. However, it’s unclear any particular blockchain solution (other than Bitcoin itself) will ever be able to reach this threshold. Without such universal adoption, blockchain’s practicality is questionable. “It’s obvious that a credit union-only distributed ledger system will require universal adoption to be of any use,” says John San Filippo, cofounder and principal at OmniChannel Communications. “It’s my experience that trying to achieve universal adoption of anything in this industry is an act of pure futility.”

Blockchain is Too Complicated

The technology behind blockchain is complex enough. Add it to the complexity of a heavily regulated business environment, and blockchain may not even get out of the gate. “Blockchain is thus also turning out to be more complicated than most of us thought,” warns Kris Henley, communications manager with the Centre for the Digital Economy at the University of Surrey. “Its tremendous potential is mitigated by its steadfast resistance to being a ‘magic’ solution, and its need for regulation like so many game-changing technologies of the Digital Economy.” Optimas’ Pierron chimes in as well. “Processing trades via blockchain would not simplify the capital markets, but rather move the complexity around,” he adds.

Performance Issues

Because of its inherently distributed, peer-to-peer nature, blockchain-based transactions can only complete when all parties update their respective ledgers – a process that might take hours. As ledgers grow, furthermore, people question whether they will bog down. “Blockchain has a lot to prove in its performance,” says Peter Hiom, deputy CEO at the ASX trading exchange. The transaction delay may also be a deal-killer. “The delay before the final assurance that a transaction has been recorded ‘for good,’ that can be up to a couple of hours, would create too much uncertainty for market participants, especially during time of high volatility,” continues Pierron.

Blockchain Ledgers’ Immutability Isn’t Always a Good Thing

One of blockchain’s most touted benefits is the immutability of its ledgers: once participants record a transaction, no one can change or delete it. Such immutability prevents the correction of mistakes to be sure – but there are other issues as well. In fact, immutability may cause blockchain to run afoul of regulation. “Digital ledger technologies must be chosen based on user needs and legal requirements,” writes the Open Data Institute. “For example; tamper-proof and immutable data stores prevent the modification of stored data, but this may not always be an acceptable property. The EU ‘right to be forgotten’ requires the complete removal of information; if that data is in an unchangeable system like a blockchain, this could be impossible.”

Blockchain is a ‘Trojan Horse,’
Sent by Radical Libertarians to Undermine the Global Financial System

Take this one with a large grain of salt to be sure – but at least one Bitcoin entrepreneur has stated this position. “I have no problem with the financial industry inviting the Trojan Horse of blockchain technology into their walled garden because I know how powerful the technology is,” says Erik Voorhees, CEO, and founder of cryptocurrency startup ShapeShift.io. I’ve warned about the Libertarian context for Bitcoin before, but if any members of this devoted but misguided group believe that blockchain alone will disrupt the financial industry, they are out of touch with how cautious the industry is.

In fact, the more likely blockchain is to disrupt the global financial system, the less likely it is to succeed. For disruption to be a positive business force, it must drive new competitive advantage, not simple chaos. Blockchain may be disruptive, but it’s still an open question whether it’s too disruptive for its own good. Intellyx publishes the Agile Digital Transformation Roadmap poster, advises companies on their digital transformation initiatives, and helps vendors communicate their agility stories. As of the time of writing, none of the organizations mentioned in this article are Intellyx

Chuck Reynolds
Contributor
Please click either Link to Learn more about – TCC-Bitcoin.

Alan Zibluk – Markethive Founding Member

Markethive

Russia is looking to regulate bitcoin but still doesn’t see it as a currency

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Russia is looking to regulate bitcoin but still doesn't see it as a currency

Russia is looking to regulate bitcoin but still doesn’t see it as a currency

Russia is exploring ways to regulate bitcoin, the country's central bank governor has told CNBC, but sees "doubts" over the benefits of the cryptocurrency and even questions whether it should be considered a virtual currency at all.

In an interview with CNBC, Elvira Nabiullina, governor of the Russian Central Bank, explained that she views bitcoin as a digital asset rather than a currency, and this is the way it should be thought about with regards to regulation.

When asked whether the Russian Central Bank is looking to regulate bitcoin, Nabiullina said that the authority is "analyzing" the possibility and needs to "understand more about this internalization of bitcoin and our regulatory systems." She added that there are "risks" with the cryptocurrency.

"We don't consider that bitcoin can be considered as a virtual currency. It's more digital assets with the regulation of assets," Nabiullina told CNBC in a TV interview.

The central banker did not elaborate on what specific regulation would look like and said she is in no rush to put any policy into place. The governor said that the central bank does have doubts about bitcoin.

"We have some doubts, we don't see some huge benefits from introducing digital assets in our economy," Nabiullina said.

Bitcoin recently hit a record high of $2,791, according to data from industry website CoinDesk, marking around a 180 percent rally year-to-date. There's bullishness in the market with some predicting the price could go as high as $6,000 this year and even $100,000 in a decade.

With surging prices and a market capitalization of around $38 billion, governments are becoming increasingly interested in ways to regulate the digital currency, especially as more retail investors are getting involved in the market.

Japan recently passed a law to legalize payments in bitcoin which helped boost the price, with major trading volumes now coming from the country.

The stance of Nabiullina marks a changed view from Russian authorities who have been trying over the years to ban bitcoin. If Russia somehow regulates bitcoin, this could potentially affect the price, especially if more investors get involved in the asset.

Sean Walsh, a partner at Redwood City Ventures which invests in bitcoin and blockchain companies, said that further regulation could boost the price of the cryptocurrency and get rid of the handful of "bad actors" using it for illegal things.

"I agree with the view that for retail and professional investors greater regulatory structure is very supportive because it adds to the legitimacy of the whole network," Walsh told CNBC in a phone interview.

Taxation plan?

Still, it's unclear where Russia plans to go with bitcoin regulation. The country's Deputy Finance Minister Alexey Moiseev recently said the authorities hope to recognize bitcoin and other cryptocurrencies as a legal financial instrument in 2018 in a bid to tackle money laundering.

"The state needs to know who at every moment of time stands on both sides of the financial chain," Moiseev told Bloomberg in an interview.

"If there's a transaction, the people who facilitate it should understand from whom they bought and to whom they were selling, just like with bank operations."

The Russian Central Bank's Deputy Chairwoman Olga Skorobogatova has also reportedly revealed plans to tax the cryptocurrency.

"(Digital currencies already circulating in Russia will see) certain regulations with regard to taxes, monitoring and reporting, as a digital commodity," Skorobogatova said, according to news agency Interfax.

Blockchain in focus

Bitcoin has traditionally been known to allow users to make payments and money transfers anonymously. So it may seem that any taxation policy from the authorities could be difficult. But Walsh said some developments in the bitcoin community could make this policy feasible.

Firstly, bitcoin transactions have become slower and more expensive. This makes the practice of trying to split up transactions to cover your tracks very difficult. Secondly, several start-ups have emerged that are able to use algorithms to track transactions on the blockchain – the public ledger of bitcoin activity. This could allow authorities to see who owns bitcoin.

While Nabiullina admitted there were still risks with bitcoin, she expressed the Russian Central Bank's interest in blockchain technology. Because of the way blockchain technology can create a tamper-proof ledger of activity, many major banks are looking into how it can be used for tasks such as trading.

"I think it's more important to understand (the) benefits of new technologies … like blockchain which is on the basis of bitcoin," Nabiullina told CNBC.

David Ogden
Entrepreneur

 

Authors :
Arjun Kharpal Technology Correspondent
Geoff Cutmore Anchor, CNBC

Alan Zibluk – Markethive Founding Member