WTF is blockchain
5 trends we’re watching this week
Wall Street’s top 6 bitcoin projects
5 trends we’re watching this week
Why senior financial professionals should care about bitcoin and blockchain technologies
We have entered a period of what Google’s chief economist, Hal Varian, likes to call “combinatorial innovation”; a term for when many factors combine to drive the creation of new inventions. Today, the key factors sparking innovation are transparency of information, speed and connectivity, open source software and APIs which enable the development of layered ecosystems of applications. One such innovation that was created by the coming together of these factors is the blockchain.
What is blockchain and how can it benefit why should finance professionals care?
The blockchain serves as an append-only data store of transactions that has two components: a replicated ledger and a distributed database. The database is stored and synchronized by all parties (referred to as nodes) to a shared ledger within the blockchain network. Bitcoin, a digital currency that uses blockchain technology, is used to track money transactions but it can also track the exchange of other assets including financial securities or data related to an individual’s identity such as IDs or proofs of address, for example.
Blockchain is far from being a passing fad and finance professionals need to become familiar with the concept because, in time, it is likely to fundamentally overhaul the way financial transactions are made. Indeed, once it begins to be adopted more widely, it will revolutionize the structure of the financial services industry as the technology eliminates the need for trusted intermediaries such as clearing houses. Financial institutions that are not exploring the opportunities that blockchain creates will lag behind in terms of knowledge and strategic options, particularly in relation to efficiency and cost saving opportunities. Further, front office systems automation, as well as the simplification and standardization of back office systems, are areas that are likely to take place as a result of blockchain technology implementation. Financial institutions, therefore, have duty to look to innovative technology solutions the adoption of which may be more imminent than is currently understood.
Where do you see blockchain making an impact within finance? When?
GreySpark is currently exploring seven capital markets’ use cases for the blockchain:
- Payments and remittance
- know-your-client or anti-money laundering
- digitized financial instruments
- regulatory reporting
- clearing and settlement
- reconciliation
- smart contracts applications for servicing of financial instruments
The most pertinent use cases, in GreySpark’s opinion, are in clearing and settlement, reconciliation and the use of smart contracts.
Smart contracts are event-driven computer programs that allow the automatic verification of the transactional governance (terms and conditions) between two counterparties, eliminating the need for a central arbitrator. Smart contracts can be added to blockchain-based transactions to deal with the legal aspects of a commercial agreement.
The use of blockchain technology will mean that the execution, clearing and settlement of a trade can occur quasi-instantly, lowering post-trade latency and reducing counterparty exposures. Blockchain transactions are quicker, less expensive and involve fewer intermediaries such as brokers and central securities depositary that the traditional approach.
Blockchain technology can also be used to simplify the reconciliation of trades as this approach does not require the comparison and rectification of ledgers held by different institutions. In the case of a private blockchain, where participants gain permissioned access to the database, institutions are able to meet their reconciliatory obligations without actually having to reconcile with other institutions, thanks to the replicated and synchronized nature of the blockchain ledger.
It will, however, take some time for the scale of blockchain applications to reach a critical size. As it is at an early stage of development, the excitement it is generating in the industry is a normal thing, but the first step into this new world, such as investing in blockchain start-ups for example, must be taken with great care: lucidity and a comprehension of the implications will be a key success factor in this area.
Can you give an example of a block chain initiative that you’re currently working on that demonstrates where this market is headed?
While the applications for Distributed Ledger Technologies for each use case are equally valid, some of the use cases have already proven to be stronger than others. These offerings are capable of either disrupting or replacing existing trade-lifecycle technology systems and processes in banks and financial markets infrastructure providers such as clearinghouses and exchanges.
GreySpark believes a starting point for the industry should be to focus on developing ways of employing blockchain technology to improve the process of transferring securities by enabling market participants to connect on a peer-to-peer (P2P) basis without the intermediation of brokers. This would remove friction and allow the execution, clearing and settlement to occur at a trade-entry level, quasi-instantaneously.
When trying to turn the transfer of securities into a real P2P blockchain-based system, the challenge lies in taking the whole trade lifecycle into consideration to ensure the process is seamless. For instance, from the technology perspective, this includes being able to digitize securities and map share registers on the blockchain. Another challenge is to ensure the blockchain technology is scalable enough to deal with tomorrow’s transaction volumes. To address this, companies such as SETL are developing solutions to extend bandwidths and increase block capacities.
What does 2016 have in store for blockchain?
In 2016, people will begin to focus on, not only defining proof of concepts, but on the development of operational and productive applications. A carefully investigated proof of concept will enable firms to identify vendors that are right contenders for executing their blockchain program.
Also, increasing numbers of financial institutions will reach out to consultancies like GreySpark to help them to adapt to innovative technologies, assess emergent players and understand the risks associated with the new technology. Clients will be equipped with strategic plans to help them both understand and gain competitive advantage of the evolving technology environment. To address emerging trends and face innovation challenges in the Capital Markets industry, major financial institutions need help in deciding whether they should build in-house systems, collaborate with existing key players or invest in or directly acquire them. Ignoring the new concepts and innovations is an option financial institutions can no longer afford.
William Benattar
William Benattar is a member of GreySpark’s fintech advisory team. By maintaining a comprehensive view of the fintech arena, William assists GreySpark in helping start-up firms enter the marketplace; advises private equity houses on financial technology due diligence; and advises buyside and sellside clients on the development of strategic and innovative projects . Prior to joining GreySpark, William worked for Kantox in the business and product development team, focusing on strategy developments of FX systems. While being student ambassador for Google, William has spearheaded initiatives aimed at helping SMEs develop and implement their digital strategies. William is an existing mentor at the London-based accelerator program — Startupbootcamp Fintech — advising start-ups on product development, roadmapping and fundraising avenues.
GreySpark Partners
GreySpark is a business and technology consultancy that specialises in mission-critical areas of the Financial Markets industry with offices in London, New York, Hong Kong, Sydney and Edinburgh. GreySpark has expertise in Electronic Trading, Risk and Trade Management, Operations and Data Management and provides Business and Financial Technology Consulting services to buyside and sellside businesses as well as exchanges, market data providers, Independent Software Vendors and technology makers.
GreySpark recently published a report entitled The Blockchain: Capital Markets Use Cases.
Photo credit: Marko via VisualHunt / CC BY
5 trends we’re watching this week
[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s newsletter .[/alert]
- As more pay by smartphone, banks scramble to keep competitive in consumer banking (NYT)
- R.I.P. Bitcoin. It’s time to move on (more on the theme that Bitcoin is permanently broken). (Linkedin)
- The challenges of insurance in the era of drones, cyberwarfare, and connected wearable devices (TechCrunch)
- Young high-earners driving fintech revolution as early adopters of new tools, platforms (ComputerWeekly)
- Francois de Lame of PolicyGenius on how to build a digital-first insurance brand (Tradestreaming)
How Digital Currency Council’s Sarah Martin is professionalizing bitcoin and blockchain technologies
Sarah Martin is Vice President of the Digital Currency Council
What is the DCC? What are its objectives?
The Digital Currency Council (DCC) is the world’s largest bitcoin and blockchain technology trade organization. We’re roughly 2,500 members strong across 100 countries worldwide, and our membership comprises top-level executives from tech, finance, government, law, media, and business services. We’re dedicated to growing the digital currency industry and advancing blockchain technology. We welcome new members with online coursework in bitcoin basics and free educational resources. And we offer a gateway to tap into a network of senior digital currency professionals – entrepreneurs, venture capitalists, technologists, and heads of financial institutions. Our ambition is to provide an online ecosystem to connect people around the world and facilitate linkages for our members to create business or professional opportunities or meet up with one another at conferences and global events.
What are some of the biggest challenges in today’s market facing digital currency and ancillary technologies?
The digital currency industry is going gangbusters right now. It’s a tremendously exciting time to be part of the thrill ride. What can be a little unnerving as excitement, attention, and investment keep hitting the gas is whether we’ll speed up too fast and get pulled over. Regulatory uncertainty has been hanging over our industry for years. As we continue to accelerate, questions about if, how, when, and where bitcoin and blockchain technology will be regulated loom even larger. Regulation is not a new or unique issue for the digital currency industry. But it’s one of the top concerns that our members express when asked what keeps them up at night.
Where are some of the biggest opportunities for incumbent financial service firms with digital currency? What about startups in the space?
Faster payments. Overhauling financial infrastructure may not sound super sexy, but the efficiency and cost savings may be formidable. Several startups* are currently working with large financial institutions to pilot blockchain-based systems to expedite clearing and settlement. We’re also encouraged that the UK, US, and Canadian governments have all expressed interest in exploring distributed ledger-based systems to modernize their payments infrastructure. We’re focused on fostering these types of collaboration – between startups and financial institutions or startups and government systems – and we’ve been thrilled by the number of partnerships in the last year.
*I’m afraid I can’t outwardly endorse any here.
What are your plans for 2016? What should we keep our eyes out for?
The DCC just had its first birthday and we’re astounded by the growth in just one year. It really speaks to the spirit behind the digital currency industry and outlook of our members for blockchain technology. We didn’t anticipate the sudden surge in support for blockchain technology during this past year. But, we’re excited to share in that enthusiasm, and our objective is to accelerate that upward trajectory. Right now, we’re focused on expanding our international membership. Bitcoin is a global phenomenon, and we’re building new alliances with partner organizations worldwide to support our members overseas and provide them with resources and access to opportunities.
Photo credit: Dean Hochman via Visualhunt.com / CC BY
5 trends we’re watching this week
[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s weekly newsletter (published every Sunday).[/alert]
1. Tradestreaming’s 2016 list of the top 20 insurance startups (Tradestreaming)
Insurance technology, or insurtech, startups are popping up everywhere and a handful of them have raised significant capital. Who’s on their way to success in the space? We put together a list of 20 (+5 honorable mentions) top insurance startups in 2016.
2. 10 B-School Experts Reveal Predictions For Finserv Disruption (BusinessBecause)
10 B-school professors weigh in on where they think innovation is headed in financial services
3. Bitcoin is Entering the Age of Practicality (CoinDesk)
The blockchain is essentially a database. It may be the Liam Neeson of databases, but still it’s a database.This new age of practicality must be filled with companies solving real problems – problems that could not be solved before the gift Satoshi left for us (before returning to his alternate dimension)
4. What’s Expected for Fintech 2016? A Special Roundtable [AUDIO] (Bank Innovation)
What does 2016 hold in store for fintech, payments, and banking innovation? Matt Harris, managing director of Bain Capital Ventures, and Brian Roemmele, CEO of Pay Finders and a noted payments analyst, joined Bank Innovation to discuss just that
5. Can Fintech Fix Financial Services? (TechCrunch)
“The thing most in need of innovation in the financial sector is the nagging feeling on the part of the everyday customer that somewhere, somehow, he is getting screwed”
A week after selling to Nasdaq, SecondMarket founder raises money for blockchain venture
Barry Silbert is a man on a mission. As the founder of SecondMarket, the ink has barely dried on Nasdaq’s acquisition of the fintech platform specializing in tender offers (private transactions in private companies) and now the entrepreneur is on to his next big thing.
[x_pullquote type=”right”]As it gets more liquid, as a [payment] rail it will become a real alternative to the existing money transfer systems in the world today. — Barry Silbert, Digital Currency Group[/x_pullquote]Silbert took the opportunity of speaking from the stage at Money 20/20 to announce the launch of his new firm, Digital Currency Group (see its Crunchbase entry). DCG, a digital currency and block chain company, is being joined by an A-list of strategic investors. Bain Capital Ventures, Transamerica Ventures, FirstMark Capital, MasterCard, and New York Life will use DCG to gain exposure to the rapidly growing cryptocurrency space.
In addition to these investments, the company will also operate wholly-owned subsidiaries Genesis Global Trading, a bitcoin OTC trading firm, and Greyscale Investments, the firm that manages the publicly traded Bitcoin Trust (Symbol: GBTC). Silbert also said that DCG will launch a third wholly-owned subsidiary in 2016 (Source).
Fortune’s Dan Primack had more color on Silbert’s strategy driving DCG:
It also will house a portfolio of 57 seed-stage investments that Silbert and his team have already made, including Chain, Circle, Coinbase, Ripple and Xapo. They also have backed several companies looking to exploit bitcoin’s blockchain technology for uses outside of finance, including Ascribe (managing digital IP) and ShoCard (digital identification).
Silbert has been very active as an investor in the bitcoin space. He said that given the extent of his portfolio, he estimates that his portfolio has attracted 70% of all venture capital that’s been poured into the digital currency and bitcoing space.
Creating a digital currency ecosystem
Silbert plans to utilize DCG as a holding company of sorts to make further investments in the space. He told CoinDesk that DCG will invest in a further 10 to 20 companies in 2016.
Indeed, Silbert sees DCG’s role as more than just a seeder of new business in the fledgling market. With such a sizeable and influential portfolio, DCG can act as somewhat of an ecosystem for companies playing in the blockchain space.
Per CoinDesk:
In turn, his company is hoping to use its “unique position” in the industry to foster collaboration between entrepreneurs, investors and – crucially – legacy institutions, who are seeking answers about blockchain technology’s disruptive potential.
That’s just one side of the market. Large financial institutions, some of them making their first moves into the digital currency space, need the safety and guidance of a firm that’s helping to lead the charge. That’s where DCG comes in. With 5 showcase institutional investors, DCG may act as a curated accelerator of firms looking to do business with the incumbent financial industry. In this way, DCG can act as matchmaker, pairing up supply and demand between startup fintech firms and larger, multinational institutions looking to partner.
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Simply invest like a hedge fund — with Mike Kane
In the world of investing, there’s a lot of excitement around roboadvisors.
These automated and cheap investment platforms, like Wealthfront and Betterment, are attracting billions of dollars.
But, according to Mike Kane, there’s a big problem. Their investment strategies aren’t best of breed and investors will get hammered when markets go south. The CEO of Hedgeable joins Tradestreaming host, Zack Miller to talk about his roboadvisor that uses sophisticated tools — the like employed by hedge funds — to manage retail investor money.
Listen to the FULL episode
About Mike Kane
Mike is the CEO of Hedgeable. He co-founded the company with his twin brother, Matt, and Mike oversees Hedgeable’s investing, strategy, business development, and branding initiatives.
Resources Mentioned In The Podcast
- Hedgeable (Mike’s company)
- Hedgeable’s Research Center
- Seeking Alpha (resources Mike recommended checking out)
- Market Realist
- Mike joined me on the Tradestreaming Podcast to discuss Hedgeable back in 2012. Check out that conversation here and see how the company has progressed and developed.