Ripple Makes Waves

Posted on : 27-10-2017 | By : Tom Loxley | In : Bitcoin, Blockchain, Crytpocurrency, DLT, Finance, FinTech, Innovation

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The big banks seem to have stopped resisting and begun embracing blockchain technology…well, at least when it comes to embedding the technology into their payments and transactions. Some time ago now Ripple (the digital currency and distributed payment network) pitched its tent on the Swift network’s front lawn and has been an increasingly irritating thorn in the payments provider’s side. (Description of Ripple provided by coindesk.com.)

It seems that Swift can no longer deny the clear advantages of blockchain technology, or perhaps in a savvy move, Swift has let Ripple do the hard work when it comes to the risk and testing involved in new employing a new leading-edge technology. But it’s more than just a new piece of code or tech that Ripple and the other big cryptocurrencies have brought to the financial services (FS) arena. It’s more like a paradigm shift.

For years the financial institutions have been upgrading software and bolting on workarounds to try and keep up with new demands and ever-evolving marketplace. This has resulted in a metaphoric Frankenstein of IT stacks and ageing and outdated technology. Some of the bigger institutions still have to wheel in the experts from the 80’s to deal with their issues because the tech is so old the IT workforce of today just don’t get exposed to it. Talk about choke points or single points of failure.

Big names from the FS industry have come out swinging against the cryptocurrencies boom with the likes of Jamie Dimon of JPMorgan and Larry Fink of Blackrock voicing their issues with Bitcoin. Now I’m not a diehard fan of cryptocurrencies, and I see the obvious concern with what appears to be the massive bubble that is Bitcoin and some of the other more expensive digital currencies, but there is part of me that hails them for the disruptive kick up the backside they seem to have given the FS industry.

Whatever you may personally think about Bitcoin and the early cryptocurrencies, their presence has created choice, a new way to transact value with some real benefits (transparency, security, more autonomy/control, speed, and lower costs) using blockchain technology, or Distributed Ledger Technology (DLT) as it is becoming more widely known as in the FS circles. (As if renaming it and slightly tweaking the definition has somehow distanced them from admitting there is real value in something that was widely scoffed initially.)

By popularising blockchain technology, cryptocurrencies have forced the FS industry to take a serious look at their technology and this (in my opinion) seems to have busted the door open to other new FinTech ideas. In fact, it now seems that the bigger institutions are clawing to be the first in the FinTech race and woe betide the Innovation Executive who is responsible for passing on the next bit of groundbreaking software, especially if the competition picks it up. Innovation is the new name of the game.

Ripple has continued its assault on the Swift network by boasting that its distributed financial technology can help banks cut the time and cost of clearing transactions and at the same time allowing new types of high-volume, low-value global transactions. Ripple also hosted their conference called “Swell: The Future Is Here” over the same period in October and only a few miles away from Swift’s Sibos event. They came out guns blazing with Ben Bernanke and Tim Berners-Lee headlining at their event and have made it clear the time and location of the event was not a coincidence.

Ripples tenacity seems to be paying off with over a 100 banks and FS organisations signing up to its network. Swift is hitting back with the 3rd phase of its global payment initiative (SWIFT gpi) focussing on DLT. Many of the larger banks have joined forces with Swift to explore the DLT Proof of Concept reporting initial success.

Swift is not the only large FS organisation exploring in this space. Indeed, despite Jamie Dimon’s opinion of Bitcoin, apparently he’s not opposed to the underlying technology. JPMorgan has used the Ethereum blockchain protocol as a base for Quorum, a DLT platform designed to support any application requiring high speed and high throughput processing of private transactions within a permissioned group of known participants.

Many other FS organisations are also exploring privately and collectively in consortiums to win the race and harness the power of the blockchain.

The irony here is that while we’re all caught up in this whirlwind of disruption to the FS industry, at the end of it all what is the real impact a year or so down the line? Kelly, the insurance broker from Doncaster, South Yorkshire makes the deposit payment on her new 4 bedroom semi-detached and says…hmmm…that was quicker than I remember a few years ago… and then gets on with her day. Or am I just being cynical?

Bitcoin – New Cash or New Crash?

Posted on : 28-09-2017 | By : Tom Loxley | In : Bitcoin, Blockchain, Finance, FinTech

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Much hype has plagued the media surrounding Bitcoin once again last week, this time concerning JPMorgan Chase chief Jamie Dimon. He made his comments whilst speaking at the banking conference in New York and his interview afterwards when he was asked his opinion on Bitcoin.

Having seen the actual interview during which his comments were made, it is my opinion that whilst there are some worthy and serious underlying issues which I believe he was justifiably correct in highlighting, the media has certainly sensationalised the content of what was said.

He has been famously quoted for making the analogy between Bitcoin and tulips. Referring to the mania that surrounded the perceived value of tulip bulbs in Holland in the 17 Century which caused the price rocket up well beyond their actual value. A Tulip was reported to be worth upwards of five times the cost of an average house, with obvious negative results. He capped off his ideas on the subject my making another reference to the famous Hans Christian Andersen short story The Emperor’s new clothes. Here (spoiler alert) mass hysteria surrounds the beauty of Emperors “new clothes” despite him being naked because no one has the courage or self-assuredness to argue against mass opinion for fear of being wrong or ridiculed.

It’s a clever and apt use of the metaphors. Even for someone who sees value in the disruptive effect of the cryptocurrency movement on the evolution of FinTech and the philosophy underlining (Bitcoins founder) Satoshi Nakamoto’s (Bitcoin’s founder) white paper, I can see the concern and won’t argue with the analogies.

However, if I was a sceptical man I wouldn’t be able to ignore that fact that, whilst Jamie Dimon’s credentials are fantastic and his opinion is highly regarded, the advent of Bitcoin (at its extreme) has the potential to shake his entire financial industry it to its knees. Therefore, it wasn’t surprising (even if well founded), when he stated, “If we have a trader that trades Bitcoin, I would fire them in a second, for two reasons: It is against our rules and they are stupid, and both are dangerous,”. Make of that what you will.

He may well be right, the general ignorance that still surrounds cryptocurrencies and blockchain (i.e. many people still see Bitcoin and blockchain technology as one and the same thing), coupled with a “jump on the bandwagon” mentality (and in some cases, a hint of greed) is seeking to over-inflate and undermine the intrinsic and true value of Bitcoin. Since its inception it has already undergone large dips in value, though it’s resilience to come back stronger is impressive.

Although it is not mentioned in many of the articles which cover the Jamie Dimon interview, he clearly states he does see a reason for Bitcoin, saying that “if you’re in Venezuela, Ecuador or North Korea you probably better off using bitcoin”.

He also states that he is not giving investment advice and that it may go much higher in value yet. His warning is that it will eventually burst because governments in first world countries like to regulate fiat currency and know who has it in their possession.

He stated that currently, governments consider Bitcoin a novelty, but eventually as it grows in popularity they will shut it down (however, how or whether that is even possible is a subject for another day).

Of course, it is worth noting a few points here which I believe are relevant. Initially, in his interview, Jamie Dimon uses the term Bitcoin as the subject of his conversation but then corrects himself and uses the more general term cryptocurrency. I bring this up because, as stated before, there is a still much confusion surrounding cryptocurrencies and blockchain technology (I will include a small glossary at the end of this article for those who want to know the differences and definitions). Many people still don’t (or can’t) yet differentiate between Bitcoin and the hundreds of other cryptocurrencies. It seems to me that what Jamie Dimon he really talking about at the conference is not Bitcoin per say, but cryptocurrencies in general, something which the general media has not seemed to pick up on.

Bitcoin has got a lot of bad press simply because it is the most recognised cryptocurrency (don’t feel too bad for it though because it has also rocketed in value for the same reason).

It’s also worth noting that what he is talking about is unregulated cryptocurrencies. Jamie Dimon’s concerns here are well founded. The sad fact is, that whilst the cryptocurrency remains outside any regulation and the outside control of any government-backed organisation it is likely to be exploited by criminals and those with nefarious intentions no matter how many legitimate users it has.

The technology could (and in my opinion probably will) be used by first world governments to create their own version of cryptocurrencies that are regulated and therefore have many of the benefits of cryptocurrencies, without the worry of destabilising the economy or causing massive inflation, which has been highlighted by the Bank of England (BoE) as a concern.

It may not be too long before you find yourself using the BoE’s “Crypto-Pound” or US Treasuries “Crypto-Dollar” to buy your weekly shop at the supermarket. Doubtless, many will argue that this would go against the whole philosophy of “Be Your Own Bank” that underlies (what some consider to be) the greatest asset of the current cryptocurrencies. However, it would solve the regulation problem whilst at least keeping some of the technical assets intrinsic to the technology (speed, transparency, efficiency, accessibility etc…).

The value of Bitcoin dropped substantially after the comments by Jamie Dimon. However, it bounced right back proving that although it may burst one day it still has a lot of confidence among investors and the growing number who are determined to make it a mainstream currency and it seems to be working.

Last week a London based property developer, The Collective announced that prospective tenants can pay deposits in Bitcoin. By the end of this year, it will also accept rent payments in Bitcoin too. A spokesperson stated that the decision was made after increasing requests from foreign customers. Also last week Last week, Lady Mone (British entrepreneur, global speaker, designer, innovator and parliamentarian) launched a major property development in Dubai, priced in bitcoins. She stated that the digital currency was a growing market that could not be ignored.

The world of cryptocurrencies is still embryonic and remains unclear as to how it will unfold, but it is certainly interesting to watch as a spectator, if not a speculator.

Glossary

Below is an informal glossary of some of the more popular terms in the Blockchain and cryptocurrency world, because of the relative newness of the terms here there are differing and often conflicting definitions available, however, I find these give an accurate (if very basic) overview. (The content of the definitions has been largely although not entirely, adapted from the information available at www.coindesk.com):

Bitcoin: Bitcoin is the first decentralised, open source cryptocurrency that runs on a global peer to peer network, without the need for middlemen and a centralised issuer. It has the following characteristics:

  • Decentralised
  • Transparent
  • Largely anonymous (Users hold bitcoin addresses, but they aren’t linked to names, addresses, or other personally identifying information)
  • Transaction fees are relatively small (although they are increasing gradually)
  • Transaction speeds are relatively quick (although large traditional financial institutions are now begging to harness blockchain technology to reduce their own transaction times)
  • Secured through cryptography

Cryptocurrency or digital currency: Also known as tokens, cryptocurrencies are representations of digital assets. Cryptocurrencies are categories of digital currencies. They consist of a type of electronic token with a perceived value, that is managed through limited entries in a database that no one can change without fulfilling specific conditions. Digital currency can be transferred between entities or users with the help of technology like computers, smartphones and the internet.

Blockchain: A blockchain is a shared or distributed ledger where transactions/data are permanently recorded by appending blocks. The blockchain serves as a historical record of all transactions that ever occurred, from the genesis block to the latest block, hence the name blockchain. The “chain” which connects block is often highly encrypted which makes the data stored in the blockchain highly secure and permanent.

Distributed Ledger Technology (DLT): Distributed ledgers are ledgers in which data is stored across a network of decentralized nodes. A distributed ledger does not have to have its own currency and may be public or permissioned and private.