The hype around central banks, digital currencies, and blockchains

Central banks and blockchainThere has been a lot of hype around central banks, interbank payments, blockchains, and central bank digital currencies (CBDCs), but the narrative has become confusing and often misses the point.  What’s going on?  Actually two independent things are being actively explored:

  1. Decentralisation of interbank payment systems
  2. Wider access to digital central bank money (Central Bank Digital Currencies – CBDCs)

I aim to explain them both in this post.

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Blockchains and financial inclusion

Blockchains and financial inclusion

This short post gives an overview on how blockchains could impact financial inclusion and “banking the unbanked”.  There are two parts to this:

  1. Financial inclusion: who counts as unbanked? (it’s not just poor people)
  2. How might distributed ledger (“blockchain”) technology help?

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Blockchains and laws: are they compatible?

At conferences and events I often get asked a variation of “Is blockchain regulated?”.  The short answer is no: technology is rarely regulated.  It’s entities who are regulated (especially in finance).

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Blockchains and Laws: are they compatible? A paper I coauthored at R3 with Baker Mckenzie.

Banks need their technology to conform to certain standards – resilience, security, and so on.  The banks (not the technology!) get penalised if they can’t demonstrate high standards with the technology they choose to deploy.  A common rulebook that is adapted for each jurisdiction is called Principles for Financial Market Infrastructures.

But blockchains and distributed ledgers share data, and often business is conducted across borders.  And many countries have data protection laws specifying that certain types of data (eg personally identifying data) need to remain stored on computers within the borders of the country itself.  How do we reconcile data sharing with data protection laws?

Well, instead of thinking about blockchains and distributed ledgers as a mechanism for sharing data (we know data sharing is a solved problem), think of them as “business to business glue” that can make business processes between entities much more efficient.

So, some data absolutely needs to be shared.  In finance that may be some trade details: prices, amounts, delivery dates, etc.  We do this today anyway, bilaterally and via intermediaries.  But we only really want to share this kind of data with the other party (and not the entire network of participants!).  Other data needs to be kept completely internal: customer details and instructions, valuations and profit margins, etc.

Can blockchains and distributed ledger platforms deal with these kinds of requirements?  Absolutely – R3’s Corda was built specifically for this.

In my role as Director of Research at R3, I recently coauthored Blockchains and Laws: are they compatible? with Baker Mckenzie, the world’s leading cross border law firm.  If you’re into that kind of thing, it’s well worth a read.

R3’s cutting edge research and thought leadership is also now available as a separate offering to consortium membership – here’s a selection of papers that R3 has produced.

Avoiding blockchain for blockchain’s sake: Three real use case criteria

Avoiding blockchain for blockchain’s sake: Three real use case criteria

2016 was the year of creating frameworks and filters to determine if a business problem was worthy of a blockchain-based solution.  Often, the frameworks would declare inappropriate potential use cases as ripe for blockchaining, as the frameworks were often designed by blockchain vendors or consultants to let as much through as possible.  However, many of the proofs of concepts built in 2016-17 have not become industrial solutions.  Why?

Two main reasons are:

  1. The technology didn’t meet the requirements of the use case
  2. The use cases themselves were selected badly

This post discusses what went wrong with use case selection, and presents two new and better questions for use case selection.

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Blockchains and cyberwar: Why the next wave of interbank settlement systems will be decentralised

Currently a number of central banks around the world are exploring two things:

  1. A decentralised interbank payment system
  2. A central bank digital currency

Though often conflated, these are slightly different concepts.  You can decentralise your interbank payment systems without allowing the public to have digital access to the central bank’s balance sheet, and vice versa.

This short post is about the first set of experiments: decentralising the interbank payment systems.

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A gentle introduction to self-sovereign identity

A gentle introduction to self-sovereign identity

In May 2017, the Indian Centre for Internet and Society think tank published a report detailing the ways in which India’s national identity database (Aadhaar) is leaking potentially compromising personal information. The information relates to over 130 million Indian nationals.  The leaks create a great opportunity for financial fraud, and cause irreversible harm to the privacy of the individuals concerned.

It is clear that the central identity repository model has deficiencies.  This post describes a new paradigm for managing our digital identities: self-sovereign identity.

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Three common misconceptions about smart contracts

There is a lot of misleading commentary about smart contracts, leading to confusion about what they are and what they can do. Here are three of the most common myths that I have noticed. This builds on a previous piece, a gentle introduction to smart contracts.

Myth: Smart contracts are self-executing bits of code

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