There’s no great urgency about blockchain, beyond the simple fact that everybody’s doing it. Sooner or later, an enterprise based on blockchain is going to transform the FX industry in the way that, let’s say, Microsoft and Apple transformed the simple activities of adding things up, writing things down, and showing slides to support your presentation.
Oh, and Facebook transformed the business of telling people what you had for lunch.
That’s the logic behind today’s most striking evolution in socalled ‘blockchain thinking’, which is that (at last) we’ve found the co-operative space. Faced with this potentially very disruptive new technology, we’ve looked for partners, pooled resources, committed to working together – and finally hit upon a methodology for doing that effectively. CLS Group, for example, has brought together a group of committed “early adopters” (including Bank of America, Citibank, Goldman Sachs, HSBC and JPMorgan Chase) to support the phased release (over 2017/18) of the CLS Netting payment-netting service for the FX industry. CLS Netting will be built on a distributedledger platform made out of Hyperledger Fabric (Linux) in collaboration with IBM.
BEST (TECH) FRIENDS FOREVER
We know this. They’ve announced it; they’re working on it. For us, the significance is: everything about the project emphasises collaboration as a form of enlightened selfinterest. David Puth, CEO, CLS Group, speaks of “working with our settlement members and the buy-side” to develop CLS Netting; the company’s paperwork, at the time of the launch, said this: “CLS continues to engage with a wide group of partners to identify and establish best practices and innovative solutions for the use of opensource technology across payment and financial market infrastructures.” Okay, we all talk about our virtues, but a few years back, did we really spread it around like that?
It’s not the technology so much; it’s whether you’re still out in the cold. Nobody does anything on their own any more. It’s as if we’ve spent – how long since blockchain went mainstream? Couple of years? – however long, that long, talking about how to distribute our ledgers, while not realising that we’re already massively engaged in a transformative process of distributing our innovation, our creativity, not quite our whole industry (but maybe we should think about that). Blockchain isn’t new, and wasn’t even new when the banks first engaged with DLT, but the process of developing blockchain-derived methodologies – the process itself – is a radical departure. So what?
DISTRIBUTED INDUSTRY TECHNOLOGY
Blockchain is a catalyst. Harnessing innovation is not harnessing blockchain; it’s harnessing all the insights and skills that become accessible in – let’s face it – the distributed industry that we’ve built out of blockchain/DLT technology and our own collaborative drive. It’s as if the “gig economy” isn’t just for millennials; it works at scale. IBM brings, y’know, seriously hot IT skills to the party; CLS Group knows FX; add in those banks, pick up some open-source software, and you’ve got a team for the payment-netting project. Read the box Safe haven for a safe haven – on blockchain. What does The Royal Mint want you to do now? Buy gold? No. David Janczewski, director of new business at The Royal Mint, says: “We’re now inviting the wider market to participate in this project alongside us and CME Group and we look forward to engaging with interested parties in the days ahead.”
Granted, Janczewski does go on to say that The Royal Mint’s next ambition is to “develop the platforms to be able to connect to the CME network and trade gold,” which is not something you can do on your own even if you do have a gift shop, but the point stands. The selfassessment test for working out whether you’re keeping pace with innovation is not (for example) “do I know what DLT stands for?” or even, “did I understand the IT team’s latest presentation?” but “how many partner companies do I have in my distributed innovation initiative?” We’re not “digital immigrants” any more, however senior we might be in our understanding of social media, because technology is contagious. But we are travelling with our partners and customers into unexplored territory, pushing back a digital frontier. Okay, this is all getting a tad too hyperbolic. Again, so what? How do we win in a collaborative environment?
CIRCLING THE WAGONS
Among the most conspicuous exponents of distributed innovation is the R3 consortium. Most recently (and conveniently for our thesis today), R3 took the step of making their Corda smart-contractbased distributed-ledger platform open-source from end-November 2016, thereby “granting the global developer community universal access to its source code to encourage collaboration, review and contribution to the platform”. [Note: this may be obvious, but just in case. If you’re using Corda, your information remains private.]
Discussing R3’s decision to go open-source, Dave Rutter, CEO, R3, made a universally applicable point. Rutter said: “The successful application of distributed-ledger technology to financial services relies on new solutions being able to integrate and work seamlessly with each other, otherwise today’s disjointed infrastructure will simply be replicated with different technology.” Got it in one. We’re building a new infrastructure for an entire industry, not just repeating ourselves.
Before R3’s open-source announcement, there was the news that Calypso Technology would be partnering with R3 to develop capital-markets applications on Corda. Before that, we heard that R3 was developing a proof-of-concept for a shared KYC service with ten global banks, and if you delve into the archives as far back as a few months ago, you fi nd a range of disparate bodies including both the Monetary Authority of Singapore and the China Foreign Exchange Trade System partnering up with R3.
Not that it all goes one way. Coindesk ran an opinion piece a while ago (late November 2016) commenting on rumours that one, two possibly three banks were leaving the R3 consortium and suggesting that “participating in a consortium is not a natural fi t for investment banks, either in terms of style or objective.” The departure rumours went on to be reported more widely, as news, but the banks in question remain conspicuously engaged in – how does one put this? – blockchainrelated group activities. Styles change.
Probably the most crucial point about blockchain is that it isn’t the objective of all this effort. We’re past the blockchain. In this month’s Q&A interview, Dave Pearce at the NXT Foundation talks about blockchain-based FX trading in terms that suggest a very different activity from what we’re doing today. Pearce says, “Blockchain can offer fi ntech systems, banks, FX, everybody a way to replace all of their legacy systems in one relatively easy step. It can not only replace legacy systems, but offer them extra economies – for example, by throwing away the entire concept of needing a back-up strategy. Every single node on a blockchain is an entire back-up system.”
There’s a level at which this is obvious – if it’s anything, blockchain is a record-keeping system, after all. But there’s a deeper level at which anybody who has ever used (for example) a home computer is hard-wired with an absolute imperative to back up work on a regular basis. Let’s use that as a measure of the depth of the assumptions that the blockchain could bring into question. If we’re even able to think about life without back-ups, how much further could our thinking go?
We win, in this – note – clearly defined collaborative space, by not being the stand-out loser. We’re circling the wagons, if you like, or perhaps it would be more accurate to say that we’re sharing each other’s discussions (as distinct from just listening in), to be sure of not missing anything. The art of industrial diplomacy matters much more, these days, than the darker ‘art’ of industrial espionage ever did.
Industrial diplomacy is all about the partnerships, the meetings of minds, the formal discussions and the conversations by the proverbial water cooler. But crucially – it’s about listening as much as it’s about talking.
THE UNIVERSE OF FIRMS
It’s a sign of the times that there are conferences. In fact, it’s a sign of any time you like that somebody, somewhere, is urging you to register for the early-bird VIP ticket to some kind of talk-fest about the thing you do all day. But these days, the serious business case for getting out there and networking is stronger than it ever was. This issue of e-Forex will be hitting the streets in good time for London Blockchain Week, 20th to 26th January. These words are being written not long after the inaugural Blockchain for Wall Street conference on 29th November 2016. That was a serious event. “Today I went to a blockchain conference where just about everyone knew what they were talking about,” tweeted Preston J. Byrne, COO and general counsel, Monax Industries, immediately afterwards.
Among the sponsors of Blockchain for Wall Street was OTC Exchange Network. Discussing his own experience of the conference, OTC Exchange Network’s CEO, Rosario Ingargiola, says: “I continue to be surprised at the breadth of firms that are at events like this. I met people from major law firms and consultancies that serve Wall Street, to many major banks, to major mutual fund companies like Vangard, and major technology firms like Hitachi, NEC, IBM, and MSFT. This is not just a bunch of start-ups in the space building cool stuff with Blockchain. It’s the universe of major firms.”
For any corporate loners out there, that’s a telling phrase. Ingargiola continues: “Blockchain is about much more than just cost savings, it’s going to power whole new ways of doing business and it has the potential to power all together new levels of collaboration and openness as well as accelerate many processes. Wall Street should look to embrace ambitious ground-up recreations of existing business models that bring benefits to all participants.” You may detect a degree of enthusiasm here. Given the overall direction that this article has taken, it seems appropriate to give the last word to Mr Ingargiola.
What should you do at your next conference? “Take a look around and realize there is a reason why the very senior people from every major firm you can think of are sitting next to you. Don’t get left behind, make a contribution to this movement and help advance the state of the art.”
BLOCKCHAIN AROUND THE WORLD
SOUTH KOREA’S STARTUP BLOCKCHAIN
News just in from the Korean Stock Exchange, which has launched the Korean Startup Market (KSM) to enable OTC trading in the equity shares of startup companies. The aim is to support the funding of “promising” startups, and to facilitate M&A activity. Kim Seon-il, head of South Korea’s Center for Creative Economy and Innovation, says: “The KSM will serve as a springboard for startups to be listed on stock exchanges such as KONEX [for SMEs] and KOSDAQ [South Korea’s equivalent of NASDAQ].”
Supporting the launch of the KSM is Korean blockchain startup Blocko Inc., which contributed its Blockchain technology for document and identity authentication via Coinstack, its proprietary blockchain-as-a-service (or if you prefer, the company also uses the phrase “backend-as-a-service”) development platform. Coinstack may be accessed via the Cloud, or implemented directly on site.
MOBILE BTC/INR TRADING IN INDIA
Bangalore-based Unocoin has launched a mobile app, for both iOS and Android devices, that gives customers 24/7 access to real-time Bitcoin market prices and instantaneous trading. Abhinand Kaseti, co-founder and CMO of Unocoin, says: “There are more than 1 billion Indians who use mobile phones. More than 300 million use their phones regularly for accessing the internet. This trend is expected to go up by 56% per year.”
The app pairs BTC/INR. Its dashboard displays the user’s BTC wallet, with the option to send and request Bitcoin, and INR wallet, with the option to add and withdraw Indian Rupees. The dashboard also features a 24-hour price graph among other features. Kaseti cites the Indian government’s recent decision to demonetise Rs.500 and Rs.1,000 notes as another factor driving Bitcoin adoption in India.
BITCOIN IN JAPAN – IT’S AN INSURED THING
Tokyo-based Mitsui Sumitomo Insurance is planning an insurance policy to protect Bitcoin exchanges and their customers. Coverage from 10 million to 1 billion yen will be offered against losses due to cyberattacks and other unauthorized access, as well as “mistakes and impropriety by employees”. Monthly transactions at Japan’s bitFlyer exchange now exceed 100 billion yen; Japanese research firm Seed Planning predicts (in August 2016) that total Bitcoin transactions at exchanges that accept orders denominated in Japanese yen will quadruple between 2016 and 2017.
GOING DEUTSCHE ON NEW TECHNOLOGIES
Deutsche Bundesbank and Deutsche Börse have announced a joint “conceptual study” into the viability of blockchain technology for financial transactions. First stage in the study was the development of a functional prototype for the blockchain technology-based settlement of securities. This is “designed to provide the technical functionality for the settlement of securities in delivery-versus-payment mode for centrally issued digital coins, as well as the pure transfer of either digital coins or digital securities alone”.
The prototype is also capable of settling basic corporate actions such as coupon payments on securities and the redemption of maturing securities. It will be developed further “over the next few months” (from the end-November 2016 announcement) and then used “to analyse the technical performance and the scalability of this kind of blockchain-based application”. Carsten Kengeter, CEO, Deutsche Börse AG, says: “Along with the Deutsche Bundesbank we are innovatively and creatively addressing potentially radical technological opportunities for the financial sector. We will continue to do our utmost to leverage blockchain’s efficiency potential and to better understand and minimise the associated risks of this technology.”