Frictionless Tokens Create Friction

We’re gonna need another intermediary…

In 2013-15 it was trendy for online merchants to pretend to accept bitcoin as payment. It was a very cheap way to get positive media mentions and seem innovative. Overstock, Dell, Tiger direct… they were all at it after they realised it was all media upside. Even Virgin Galactic accepted bitcoin as payment for trips to space at some point (Note: I think paying for a trip to space with bitcoins is actually quite cool).

Continue reading “Frictionless Tokens Create Friction”

Useful New ICO Metrics for 2018

I’ve been at a few events recently where people talk about the “market cap(italisation)” of utility tokens issued in ICOs, and comparing them to the market cap of cryptocurrencies or (even worse) listed companies.  This is truly dreadful and misleading, perhaps sometimes intentionally so.  In this post I introduce two useful metrics for comparing across ICOs: the Reserve ratio, and the Commitment ratio.

For a non-hypey introduction to ICOs please see A gentle introduction to ICOs.

Continue reading “Useful New ICO Metrics for 2018”

Bitcoin Price, Gold, and Nonsense – How Not to Value Bitcoins

Important note: If you own more than $1,000 worth of cryptocurrency then you should definitely be using a hardware wallet instead of keeping coins on exchanges.  I recommend a Ledger Nano (S or Z) which you should buy directly from their website and never second hand.


Every few days I hear the argument “If x% of the money in gold (or other asset class) moved into bitcoin, a single bitcoin should be worth $y”.  This article explains why this argument is utter nonsense.

The (flawed) reasoning is as follows: the total value of gold in circulation is estimated at US$8 trillion.  If some small fraction of the people holding gold (say, 5%) sold their gold for US Dollars (releasing $400 bn), and the USD proceeds were used to buy bitcoins, the total value of bitcoins (commonly referred to as “market capitalisation”) would increase by that amount of dollars ($400bn), and because we know the total number of bitcoins in circulation, we can derive a price per bitcoin.

Continue reading “Bitcoin Price, Gold, and Nonsense – How Not to Value Bitcoins”

MAS just released Corda for Central Banks… so what?

I’m absolutely thrilled to be able to write about the open sourcing of Project Ubin Phase II, a key project that our team has been working on for the past seven months with the Monetary Authority of Singapore (MAS), ten banks, and our partner Accenture.

UbinPhase2
Ubin Phase 2 report

What is Project Ubin?  It’s probably the most advanced starter kit out there for anyone wanting to explore blockchains for banking:

Continue reading “MAS just released Corda for Central Banks… so what?”

Blockchains and Central Banks – What Have We Learnt?

This article was first posted on r3.com

Over the past couple of years, R3 has worked closely with a number of central banks to explore if distributed ledgers could support their policy goals, and I have had the privilege to participate in a number of these projects.

What have we learnt?  What is important?  What do central banks care about?  While I can’t speak directly for individual organisations, I have collated my own thoughts, and wanted to share these ahead of the Singapore FinTech Festival this year (13-17 Nov) when the results of Singapore’s “Project Ubin” experiments will be announced.

Update (post FinTech Festival): Read about the Open Sourcing of “Corda for Central Banks“!

Continue reading “Blockchains and Central Banks – What Have We Learnt?”

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.

Continue reading “The hype around central banks, digital currencies, and blockchains”

A Gentle Introduction to Interbank Payment Systems

How do banks pay each other?  In most countries, when banks want to transfer money to each other, perhaps upon instruction from a customer, they don’t put bundles of banknotes in vans, they pay each other digitally.  How does this work?

This post is intended as a primer about payment systems and explains correspondent banking, nostros, real time gross settlement (RTGS) systems and deferred net settlement (DNS) systems.  It supports other posts where I discuss decentralisation of these systems using distributed ledgers.

Continue reading “A Gentle Introduction to Interbank Payment Systems”

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).

blockchains_and_laws
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.