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  • user 10:40 am on September 8, 2016 Permalink | Reply
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    Navigating the Blockchain Revolution 

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    Last labor day week there were perhaps  5 articles or stories on the #blockchain discovered through an alert on Google Scholar.  This week there are over 50.  It gets increasingly harder to navigate this landscape, especially for generalists. Gartner and other innovation and trend discovery operations are now suggesting that the blockchain is being hyped.  They are simply wrong.  Academics and startups in the space are real.  Funding in the space is real.  Even in tech wastelands, the open source nature and tradition of blockchain is fueling very rapid exploration and development.  

    I think the attempt to discount the depth and breadth of the impact of blockchain is due to traditional outlets of news and information being overtaken by the movement of crowd.  They customarily work with major software firms with PR operations that translate and shape evolving products and innovations for them. However, with open source programs and crowd sourcing, nobody can maintain an edge for long.  Funding and staff may enable a toehold, but real traction is very hard to achieve in this kind of environment.  Let me put it simply.  There will be very few protected applications in this space and that means that Gartner won’t be able to access a constant set of actors. It also means that traditional monetization models will fail.  What will succeed is something like the DADE, a multitude of distributed application development entities that access development resources of the crowd and allocates ownership through proof of work and proof of stake.  The #revolution that is covered up by the hype of blockchain is the revolution in distribution of micro-ownership and therefore micro-compensation that is at the heart of the sharing economy.

    The quickly shifting landscape generates a panic even in those of us who were early adopters, especially if we thought we could leverage traditional monetization channels through providing services or consultation or developing proprietary protected applications.  Developing proprietary blockchains is the latest result.  These proprietary blockchains are already dinosaurs and wasteful and redundant.  However, for the desperate and the short sighted, they offer the false hope of a reliable and predictable income stream.   Expect more pot shots at open source from folks who have sunk assets into these proprietary blockchain systems.  If you are a news outlet or a reporter, “follow the money,” and you will understand what motivates the desire to undermine the empowerment and democratization on offer through open blockchains.

    [linkedinbadge URL=”https://www.linkedin.com/in/stansmith1″ connections=”off” mode=”icon” liname=”Stan Smith”] is Co Founder at Kleverer.com

     

  • user 8:29 pm on August 27, 2016 Permalink | Reply
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    Is it the Blockchain or the Blockchain Solutions that are struggling in the Financial Services? 

    While the concepts and potential of distributed ledger or #blockchain #solutions are becoming better known, the implementation of them in the financial services has run into some fundamental challenges.

    Is this a fundamental shortcoming of blockchain concepts in general or the current solutions?

    What if there was a new blockchain methodology approach that mitigated the challenges by design as opposed to the current approach of iterative improvements on current, available solutions with diminishing or unrealizable returns?

    The current solutions tackle the issue of confirming a shared ledger by different means.

    • Proof of Work – puzzle solving
    • Proof of Consensus – majority participant voting
    • Proof of Stake – majority value voting

     

    Problem 1: Speed and Logistics

    Beyond the computing power that is required to run these methodologies, all of them introduce latency, capacity constraints, throughput limitations and ever expanding active memory requirements (i.e. scalability issues) on the networks that run them. Current innovations are attempting to speed these processes up or bi-pass them. Some of these methods include:

    Sharded consensus – a divide and conquer mechanism for quicker, fragmented consensus.

    Lightning Networks – transactions agreed off the chain and then recorded to the chain later.

    For their benefits, do these solutions introduce more risk as it relates to control, integrity and protection from malfeasance?

    The core processing of a distributed ledger is the creation and sharing of contracted transfers of value and updates to a shared ledger that records positions of value through those agreed transactions.

    Although it sounds counter-intuitive or even improbable, if there was a means to confirm a ledger’s integrity by the transactions alone and without the need either to gain consensus with other network participants or to involve the network in puzzle solving problem, the computing power of the network would only be dedicated to processing and verifying transactions. The latency, capacity and throughput of the network would then be purely a function of the network participants’ processing and communication hardware.

     

    Problem 2: Reality (Securities and Transactions)

    Cryptocurrencies are wonderful because they are not “perfected” (i.e. held and proven to exist) by a central authority. Any national currency is perfected by a central bank and any security is perfected by a depository, sub-custodian or transfer agent. Any blockchain solution that deals with securities, which are not issued into and perfected by that blockchain’s network, has to have a relationship with the securities’ perfecting entities or it will not work.

    Looking at the publicized blockchain solutions that are being built, they primarily focus on:

    • Repo
    • Syndicated Loans
    • Credit Default Swaps
    • Payments

    The properties that these transactions and markets all have in common is that they are:

    • OTC transactions of…
    • … unregistered securities…
    • …that have a low volume per transacting party and…
    • … predominantly only involve cash transactions.

    These represent the least complex use cases in the industry. However, in most cases, they still have to allow for the posting of collateral or the transacting in the underlying securities and those positions must easily be settled between the blockchain solution and the current markets in conjunction with the securities’ “perfecting” entities.

    While a blockchain solution for the above products may provide benefits, they will be customized rather than holistic and translating them to other types of transactions will be very difficult. Regardless, beyond flexibility, have they solved for the prior issues including: capacity, throughput, latency, ever expanding accessible memory requirements (i.e. scalability issues) and confidentiality?

    The financial services businesses are demonstrably very parochial when it comes to products and functions in the industry. Most of the solutions are customized and pursue implementation paths of least resistance. These practices and behaviors will not create an optimal blockchain solution.

    Is it the temptation to take an off-the-shelf solution and inflexibility that is preventing the realization of a realizable, innovative solution?

    In all the publicized solutions, there are also real, unaddressed challenges of how the market actually works – including short transactions and financing. The obvious use case is market making but what about a Fund Manager selling a security that is on loan by his/her custodian to a Broker who sold it short for margin financing to a Hedge Fund and the settlement of that sale was to a broker who sold it to another investor whose money, for now, is in a money market fund, not in his/her custodial bank account?

    What distributed ledger entry do you reference for securities and cash that you don’t own or can’t point to at the moment of execution?

    Without a consideration for all the above issues, any blockchain solution for the financial services comes up short (no pun intended).

    After a presentation, earlier this year, by William Mougayar, renowned author of “The Business Blockchain” (available on YouTube: https://www.youtube.com/watch?v=l5hK4YKxPSo ), the moderator’s first question after the presentation (at 18:45 into the video) was “What about the scaling issue?”. Mougayer’s response was telling. He basically said that this was a known issue and there are smart engineers working on it and someone will solve for it.

    While altruistically optimistic but not definitive, does that response and the questions above about current solutions’ shortcomings make an extract from a Gartland and Mellina Group press release, made earlier in the year, worth a second read?

    “Blockchain #technology, the new frontier in transaction processing, offers powerful real-world financial applications but presents a number of challenges that must be overcome before it can be adapted to securities transactions. Secure, near real-time trading, settlements, and reporting would significantly reduce the capital requirements and costs associated with enterprise processes #banks and brokerages currently use for post-trade operations.

    Principals at Gartland & Mellina, a management consulting firm focused on the financial services industry, have been engrossed in the research and development of this new blockchain technology application to better approach future client and industry needs. GMG’s Managing Director and Blockchain Solutions Lead in the Financial Services Strategy and Solutions Practice, Paul Dowding, explains, “By understanding the current utilization of blockchain as used in cryptocurrencies, we identified the core challenges involved in applying the technology to the financial services industry as a whole. By resolving these challenges, we were able to design a unique, holistic set of blockchain solutions for the whole industry that is product, transaction and functionally agnostic.”

    GMG’s solution solves the core challenges of applying blockchain technology to the financial services industry by offering:

    1. Flexibility for Coding and Control: We designed a mechanism to create complex, multi-leg, dependent transactions within the primitive, (stacking, read-write, conditional flow) coding logic of blockchain technology
    2. Scalability & Volume: Our innovative blockchain ledger design and approach handles the significant memory, capacity and volume requirements of a high volume and high capacity continuous record
    3. Anonymity and Integrity: The GMG blockchain has the means to retain client and trade confidentiality, even on a shared ledger
    4. Suitable Blockchain Methodology: GMG maintains ledger integrity through a new real time, high volume, low latency processing design
    5. Contingent, transaction legs: We created a flexible option securing the settlement of dependent transfers of different assets such as DVP/RVP (sell-side fills and buy-side allocations), collateral substitution and FX
    6. Financing & liability-driven assets: Our blockchain solution accommodates lending, collateralized and default transactions
    7. Non-Ledger referenced transactions: The blockchain allows for future dated, accrued and short transactions
    8. Interface with Current Markets: Asset value can be transferred between the blockchain and current markets
    9. Interoperability: GMG created a product, process, functional and blockchain agnostic environment
    10. Current Regulatory, Risk, Credit, Custody, Performance & Accounting Reporting: Data acquisition and interpretation is significantly enhanced by blockchain ledgers

    This revolutionary design and approach helps GMG overcome many of the challenges facing the financial services industry today. It addresses growing industry needs for superior security, enhanced data acquisition, quicker transaction times, scalability, and lower costs. John Gustav, Partner of Financial Services Strategy and Solutions at GMG said, “Blockchain technology is considered by many to be the key ingredient to disruption within the financial services industry. It certainly has the potential to create a paradigm shift similar to the way the internet did. Our holistic, product-agnostic approach to blockchain is very different from the other publicized solutions within the financial services industry at this time.”

    With blockchain technology, a decentralized network stores the value of all investor assets in encrypted records. This allows contractual transactions, transfer of value, safekeeping and settlement for asset positions to occur digitally in near real-time without the need for a trusted third party. As forging a transaction, stealing or double spending requires overpowering a majority of the computers across the decentralized network at the exact same time, blockchain has an inherent level of security unavailable anywhere else. “Our patents include a generic mechanism to translate financial services transactions into the blockchain’s simple logic and secure code,” Dowding continued. “Benefits include significant cost reduction, near-real-time settlements, new business, product and revenue opportunities and process, and balance sheet and capital efficiencies.” GMG is currently in discussion with different parties to leverage and develop blockchain capabilities as a utility.”

     [linkedinbadge URL=”https://www.linkedin.com/in/paulfdowding” connections=”off” mode=”icon” liname=””] is Managing Director, Financial Services Strategy & Solutions Practice at Gartland and Mellina Group and this article was originally published on linkedin.

     

  • user 7:36 am on August 20, 2016 Permalink | Reply
    Tags: axzz4CR0oiNB9, , , , , , Taxes,   

    Smart Contracts, Cryptocurrency and Taxes 

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    In a previous article I wrote about Ethereum and a prenuptial smart contract created in #blockchain, I attempted to draw attention to how blockchain transactions could be analyzed under U.S. contract law.

    The prenuptial smart contract I used as a test was somewhat whimsical and didn’t address the more practical issues which could face, for example, a small business seeking to minimize financial transaction costs using this platform.

    Therefore, I would like to take the legal analysis a step further and apply it to a hypothetical small retail business with modest income and significant transaction fees paid to #banks, merchant services companies, and credit card companies. Small businesses can be early #technology adopters and present a huge market ripe for change. According to the Small Business Administration, there are 28 million small businesses in the United States and account for 40% of all retail sales.

    Under this hypothetical scenario, the merchant decided to use a popular online payment system to reduce costs, but soon discovered that fees intended to be avoided were again imposed once the merchant reached a certain sales threshold. In addition, the dreaded credit card processing fees were not eliminated entirely.

    In addition to credit card transaction fees, the merchant was faced with various state, local and federal #taxes. The merchant wanted to pay only those taxes for which the merchant was legally obligated and limit the exposure to greater financial management costs.

    This is an area where blockchain may prove to be at a great advantage — reducing transaction costs to small and medium sized businesses.

    Preliminarily, however, it may be useful to explain a little about the contracting process being proposed by #smart contracts, the substance of which is reproduced here and derived from my previous post:

    Virtual contracts are not new. What smart contracts (potentially) offer are streamlined and transparent transactions at a minimal and known cost. This contracting process runs without human intervention based on a sequence of coded events monitored and executed by a virtual distributed transaction-based and encrypted system. Blockchain is often described as an online decentralized ledger of financial transactions, the nature of which is transparent to others on the blockchain. Ethereum is a blockchain platform over which #cryptocurrency can be exchanged as well as smart contracts formed. Blockchain began as a transparent and public peer-to-peer financial ledger using #bitcoincryptocurrencyand is at the beginning stages of transforming how the federal government, small businesses and financial services do business.

    Cryptocurrency evolved from the current fiat monetary system and has beencompared to the gold standard. These monetary forms rely on a belief that the currency (in whatever form) has an agreed upon, or market created, value. Similarly, consideration, a necessary legal contract element, relies upon the parties agreeing that the value exchanged (the consideration — whether money or promises) is sufficient for an enforceable contract. For the small business hypothetical, I will use the Ethereum platform and related smart contract formation.

    The Ethereum platform uses “ether” cryptocurrency, a competitor to the more familiar bitcoin. The smart contract manages a series of mini transactions (with the colloquial meaning, not the Ethereum definition), each of which build the agreement whole. Along the way, “fees” are paid for each interaction along the blockchain process. The fees pay the “miners” who process each transaction. This activity goes on separately from the over-arching contract’s performance. Fundamentally, there are two things going on — 1) smart contract transactions and 2) the real world contract performance, each are necessary to analyze as enforceable contractual transactions.

    Generally, a contract in the U.S. is enforceable if: 1) the parties can legally enter into the contract; 2) there is an offer and acceptance; 3) there is consideration; and 4) the subject matter/form is legal.

    When there is a discussion about the legality of smart contracts, it is generally about two things: 1) whether the smart contract is illegal because of its purpose, e.g., a smart contract to commit fraud is illegal, and therefore unenforceable or 2) the blockchain code itself may render the contract illegal. I suggest that each step be analyzed as a separate contract (because consideration is exchanged at every stage in Ethereum) to determine whether each transaction is legally enforceable, e.g., is there offer and acceptance? consideration? legal parties? proper form/legal? All would have to exist for a legally enforceable contract in the U.S.

    Thus, there are two legal landscapes over which a my hypothetical merchant must navigate — the umbrella contract itself as well as the individual transactions over the blockchain.

    The contractual disputes my hypothetical blockchain merchant may face are familiar — they differ only in format and understanding. If the merchant business and its customers do not read the contracts into which they enter, are they bound? Generally, yes, unless there was fraud, duress or coercion. Should customers and merchants be expected to read code? I think there is great room for improvement here.

    When a smart contract is created, there is frequently a document in human readable, ornatural language, form which is supposed to be the basis for the smart contract code. However, some process-related transactions which are required to operate under the software platform may not be included in the contract — for example, what happens if the transaction fails (no currency or no performance) or what happens when either the merchant or the buyer changes an account address after the parties have agreed to the transaction. This may be handled in the blockchain, but the terms may not be reflected in the natural language contract. These could become routine fixes because the problems are common in regular contracts, i.e., if one party breaches, identify the remedies in the contract (select breach remedy options to include in smart contract code); no changes without the parties’ permission (flag when anyone attempts to modify/change code). The mirror image rule would be useful under these circumstances.

    For my hypothetical small business, what problems may it face under U.S. regulation and tax laws?

    The Wall Street Journal has been very busy publishing articles on bitcoin. On July 19, 2016, it posted an article about whether nations should issue bitcoin. On June 24, 2016, it published an article about how bitcoin may be taxed. In my opinion, working through the kinks now will help shape policies and regulation later.

    The WSJ tax-related article identified issues which may be faced by virtual currency owners and investors. The author referred to a letter sent to the IRS by an accountants’ advocacy group, the American Institute of CPAs. Specifically, the author asked whether virtual currency owners and investors would face capital gains tax penalties each time virtual currency is sold. In 2014, the IRS’s answer was yes, if the virtual currency wasbeing held as an investment asset. If it is used as a substitute for currency, i.e., barter or trade, then anyone using the virtual currency would face the same tax liability as that related to earning regular income, regardless of the form in which the barter appears.

    Here is the IRS position copied from Notice 2014–21 under FAQs:

    “Q-7: What type of gain or loss does a taxpayer realize on the sale or exchange of virtual currency?

    A-7: The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. For example, stocks, bonds, and other investment property are generally capital assets. A taxpayer generally realizes ordinary gain or loss on the sale or exchange of virtual currency that is not a capital asset in the hands of the taxpayer. Inventory and other property held mainly for sale to customers in a trade or business are examples of property that is not a capital asset. See Publication 544 for more information about capital assets and the character of gain or loss.”

    In the U.S., taxpayers who trade services for goods, or goods for goods, are required to report the income value of the services or goods received. The letter referred to in the June 24 WSJ article asked for additional guidance from the IRS with regard to tax reporting in order to assist their members. However, for purposes of the hypothetical small business, it may be sufficient to consider that if cryptocurrency is being traded for goods or services, the tax laws would be applied in the same way as regular income, and not subject to capital gains tax penalties.

    So it appears that like most U.S. taxable events, the local/regional/state/country tax laws apply. As a point of reference, these issues have been addressed similarly for online transactions.

    Absent startling revelations about smart contracts or cryptocurrency, these tax obligations should be familiar to small business owners. If not, small business owners should familiarize themselves with the relevant tax laws or secure professional tax advice before accepting/trading cryptocurrency.

    As for the smart contracts, careful design, planning, and predictable dispute resolution remedies will assist in promoting smart contracts as a viable business tool for small and medium-sized businesses.

    [This article was posted previously on Medium on 7/26/16.]

    Cynthia M. Gayton is an attorney, educator and speaker. She has advised small and medium sized software development companies as well as arts and entertainment businesses and individuals. She has an undergraduate degree in international affairs with a concentration in science and technology as well as a J.D. Nothing in this article is purported to be legal advice. You can contact the author via email at [email protected].

     

  • user 7:35 am on August 19, 2016 Permalink | Reply
    Tags: , consensu,   

    A Red Herring – Peril of Consensus on the Blockchain 

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    Stefan Thomas of Ripple labs got some attention today by claiming that the need for consensus among miners of a #blockchain platform like Ethereum before they implement an upgrade will hamper adoption and use.  Actually, even the substitution of the term “consensus” for “majority”, telegraphs the actual intent of the communication.  If an upgrade advantages an ecosystem/platform one would expect that miners – who get rewarded as use of the platform expands – would be happy to install a good upgrade.  And we would hope they would reject a badly coded or illogical or unjust one.

    I’m suspicious of this challenge to widespread use and adoption of an open blockchain, because I think it may be a disguised attempt to shift uninformed folks to using proprietary blockchains.  With proprietary blockchains, the vendors/owners can implement changes rapidly because they themselves vet the changes.  “Users” now become “customers” and customers are stuck with the new middlemen (not Visa or a Bank – but a vendor of a proprietary blockchain with a vendors inherent tendency to evolve into monopolies or oligopolies and milk the crowd/users of their assets.  In short, proprietary means closed and closed means higher fees paid by a user to a vendor.

    This kind of misdirection is going to increase over the these next months as folks internalize the business process improvement potential of the blockchain.  I’m even seeing this in a portion of the herd starting to advocate for proprietary databases to ride on top of the blockchain and eliminate transparency of the data being housed.  If you appreciate the open transparent crowd sourced privacy protected permanent ledger the blockchain enables, put your effort and time and even money into expanding projects and platforms like Ethereum. 

     [linkedinbadge URL=”https://www.linkedin.com/in/stansmith1″ connections=”off” mode=”icon” liname=”Stan Smith Knowledgelevers“] is Co Founder at Kleverer.com

     

  • user 11:36 pm on August 14, 2016 Permalink | Reply
    Tags: , stock issuing,   

    The Inevitable Disruption: Issuing Stock on the Blockchain 

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    Innovation has a history of paving the way for regulation in the long term.  In the shorter term there is a common theme of regulators pushing back in opposition of innovation.  This is not due to them wanting to prevent innovation (for the most part) but as a way to slow down trends so they have the proper time to be tested and prove they function as planned.

    A prime example of this occurring presently is the issuance of securities on the #Blockchain.  In the majority of circumstances this would be in violation of several security laws.  However, it is one of the most disruptive use cases of Blockchain #technology that has a high probability of being achieved within the next decade and is applicable to both private and public company stock.  While some innovators are afraid to enter this realm due to lack of clear regulation, many are not slowing their aggressive pace.  The Nasdaq has already began experimenting with this concept through a $20+ million combined investment in Linq along with countless start-ups working towards a similar common goal.

    If the current world markets are slowly transformed into running on Blockchain networks it changes the landscape to be less focused on monetizing through the intermediaries.  It is estimated that current back-office inefficiencies cost financial service companies a minimum of $20 billion per year so there is definitely a financial incentive for the implementation of a more efficient technology core such as Blockchain.  It would enable true peer to peer trading in a fast and secured environment thus eliminating the need for brokers, except in rare situations.  It also enables the instant verification of ownership and transfer making settlements t+0 and post-trade data available much quicker.  Once a company migrates or issues shares on a Blockchain network it also makes the implementation of smart contract technology a possibility which has the potential to increase efficiencies through the automated posting of margin (capital) requirements in real-time and automatic distribution of dividends and other mandatory market events.  Not to mention shareholder voting can easily be completed on a Blockchain network and trigger the automatic execution of a smart contract.  While all of this seems great and many want to see it happen tomorrow, something this disruptive is not going to happen overnight, it will slowly be phased in over years.

    While this implementation has process efficiency benefits for publicly issued stock, it completely changes the financial environment of start-up and private companies which as a whole typically have illiquid shares.  For those unaware of how start-ups typically work from a financial point of view, they issue shares to the founders when registering the company, then issue more shares for each investment round (take convertible notes out of the picture here for simplicity), and are often restricted to only accepting funds from accredited investors (individuals worth over $1 million or exceed annual salary requirements).  These shares are rarely every liquid and often restricted which means that investors cannot sell shares to someone else like they can with shares of a public company.  The investors do not normally receive any real return until a cash event occurs such as an acquisition, merger, or IPO.  Another aspect to take into account is that many start-ups structure their employee compensation to be a mixture of stock and salary.

    The conversion of private company stock to a Blockchain network is truly game changing to the entire process.  Start-ups would be able to issue shares to public investors (similar to an IPO) from the time of registration (new crowdfunding legislation is already shaping the path for this), these shares would be more easily transferrable thus creating liquidity in the market, and employees receiving compensation in a mixture of equity and salary would have the option to sell their shares prior to a standard cash event occurring.  There are several critical factors that would need to be addressed prior to this implementation being feasible such as: How would stock options work? What would happen to shares in the event of an acquisition? What auditing regulations need to be put into place? Can shares be revoked, etc.?

    So what is the downside to the conversion of stock to a Blockchain network?  Much of this technology is still largely untested in production environments so that will take time to ensure security and functionality.  Another major barrier is performance.  Current trading networks handle millions upon millions of transactions a day and need to be executed in milliseconds so latency is a concern.  Put aside the smaller concerns such as proper user/key management, and the final barrier is regulation that must be put into effect to even make this a possibility, but as stated previously, regulatory changes will happen with enough support of a Blockchain transformation, it is just a matter of time.

    [linkedinbadge URL=”https://www.linkedin.com/in/ian-m-worrall-1b599a59″ connections=”off” mode=”icon” liname=”Ian M. Worrall“] is Chief Executive Officer at Encrypted Labs | Blockchain Technology


     

  • user 7:36 pm on August 14, 2016 Permalink | Reply
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    Is Blockchain Adoption Gaining Momentum in the Enterprise? 

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    This article covers #blockchain, a distributed ledger #technology, its perception and the ambivalent (for now) adoption by corporate enterprises. Co-authored Converge VP investors Maia Heymann and Ash Egan.

    Most Fortune 500 companies are having extensive conversations, in CIO suites or in innovation labs, on whether the blockchain technology is right for them, and their peers – discussions on how their primary business lines might be affected by the technology, current solutions, and the areas (or consortia) to invest in. Distributed ledger standardization is far from reality, and although there are promising developments in #Bitcoin adoption and corporate blockchain experimentation, it’s still not clear when (or how) enterprises will ramp-up pilots and accelerate commercial-grade adoption. Some sectors like financial services are far ahead in exploration and testing, but general skepticism and even a misunderstanding are slowing blockchain’s future as a widely-adopted disruptive technology.

    After attending Consensus 2016 in NYC, and a few blockchain enthusiast dinners at MIT, it’s clear that established corporate players are exploring and investing in both forms of blockchain: permissioned and public. The Consensus conference, hosted by Coindesk was packed with #fintech executives as well as Bitcoin and blockchain vendors and voyeurs—our term for IT buyers looking and not buying. Theories and opinions regarding the direction of blockchain technology are as varied as the attendees.

    A corporate IT buyer’s reticence regarding blockchain is understandable. First, it’s challenging to explain the blockchain to senior management; it is a technology that no one owns, no single party is accountable for, and it’s based everywhere and nowhere. Second, Bitcoin’s rocky road is perceived as a cautionary prelude to what could go wrong with a distributed governing body. A recent New York Times article publicized that over 70% of the transactions on the Bitcoin network were going through just four Chinese companies (data assembled by Chainalysis [1]). In short, there is apprehension around limited to zero control, or too much control in the wrong hands, for a corporate IT buyer to join an open, permission-less system.

    Despite doubts around practicality, security and utility within blockchain’s open, permissionless system, start-ups, new consortia, and corporate players are advancing the technology through ‘closed’ experiments to test blockchain’s potential applicability. These early tests are being supported by venture capitalists globally, and Olga Kharif says $1.1B has been invested to date in startups commercializing blockchain in “Blockchain Goes Beyond Crypto-Currency”.

    Corporate business use-cases have the potential to generate improved margins and provide customer/client benefits in transaction-based industries: peer-to-peer payments, identity management, cross-boarder trade, and solutions within commercial payments and finance. One large insurance firm commented: “Broadly, the use-cases of Blockchain in transaction processing are most likely to be implemented early across the industry – the range of solutions that exist today are quite rich, from faster international transfers to more efficient settlements on exchanges, this is the area that appears to be the most promising in the near term.”

    Backing-Up, What Is Blockchain? Bitcoin to Blockchain

    Blockchain, born out of Satoshi Nakamoto’s 2008 whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System” is a distributed database, a decentralized and shared public ledger of time-stamped transactions within a network, open for review by anyone within the network. “The Business Blockchain” by William Mougayer uses a three prong approach to defining the blockchain: technical: back-end database that maintains a distributed ledger, openly; business: exchange network for moving value between peers; legal: a transaction validation mechanism, not requiring intermediary assistance (pg 4).

    Bitcoin, powered by the blockchain, is a virtual crypto-currency allowing peer-to-peer payments for network members – becoming the first manifestation and widespread adoption of the technology. The crypto-currency began as an open source project, and requires the network to confirm transactions – a key component of its decentralized nature. Currently, Bitcoin is maintained by a small group of developers called theBitcoin core. This group is responsible for pushing updates and progressing the network, while Bitcoin network members (miners) power transactions.

    Each participant (or node) puts the transactions into blocks and blocks into a single chain, and stores a complete record (or ‘proof’ system), protecting the integrity and veracity of all transactions in the chain. The system is anonymous, and through its mathematical proofing system eliminates the need for an intermediary or for third-party verification. The network resolves the conflicts so all nodes have the exact same copy of the distributed ledger. The collective effort of Bitcoin’s network made up of computers and servers all over the world, provides the compute power.

    While millions of Bitcoin transactions have occurred (surpassing $10B in market value), corporations and financial institutions remain skeptical due to the absence of regulation, the perception of proximity to criminal activity, a slow moving ‘governing’ body from Bitcoin core, and the concentration of power and control of miners (presently with four Chinese companies). These issues among others compound to call into question Bitcoin’s independence and decentralization. The skepticism, however, is evolving into recognition of the underlying technology’s potential, and as Goldman Sachs’ Robert Boroujerdi said, “Bitcoin was just the opening act.”

    In line with Boroujerdi’s comments, William Mougayar points to the blockchain technology, as being as innovative as the Internet in ‘The Business Blockchain’: “the blockchain is part of the history of the Internet. It is at the same level as the World Wide Web in terms of importance and arguably might give us back the Internet, in the way it was supposed to be: more decentralized, more open, more secure, more private, more equitable, and more accessible”.

    Why The #Enterprise Cares About Blockchain

    Disruption. FOMO (fear of missing out).

    Applications of blockchain technology include (but are certainly not limited to) stock issuance, provenance, smart contracts, streamlining of loan underwriting, and payment transfers. Many industries will be impacted by both private distributed ledgers and crpytocurrency — agriculture, insurance, financial services, and even entertainment—almost all industries could find use-cases for the adoption of blockchain technology.

    As mentioned earlier, financial services companies are far ahead in exploration and testing blockchain technology. What became apparent via multiple conversations at Consensus 2016 is many corporates are exploring blockchain for fear of missing out (FOMO). Enterprises are opportunistically exploring and experimenting with side projects (via pilots), simultaneously suspect of relinquishing control and fearful of losing revenue associated with their intermediary or third-party verification business lines. As upstarts and even competitors adopt the technology and attest to its financial efficacy and cross-departmental value, the lure of not being left behind is strong. We’re seeing corporate buyers framing why and how the blockchain can theoretically and practically serve their companies’ needs. One large institution on the east coast said, “we are pursuing multiple ways to understand and leverage the technology – for instance [our] Ventures team looks at startups that leverage Blockchain and other cutting edge technologies. We are exploring multiple fronts in a coordinated manner.”

    The extent to which crypto-currency, public blockchain, and private blockchain applications are accepted and scaled by corporates remains unclear, but the signals are encouraging. A report from Santander anticipates cost savings up to $20B annually by 2022.

    Balancing Risk with Potential

    It’s no walk in the park to replace current infrastructure (mainframes), with a new system, whether that is blockchain or an alternative. The headache of adopting blockchain technology and connecting to legacy systems is not to be underestimated. Beyond understanding the potential cost savings of using blockchain’s system, buyers need to include the cost of migration in their calculus – evidence of this expense are the consulting firms who have set up entire blockchain practices. The Rubix Team at Deloitte, offers a “one stop blockchain software platform” and is an example of consultants being at-the-ready to contract with their clients to re-architect legacy technology and processes.

    For all of blockchain’s benefits, corporations are aware of the risks of Bitcoin and blockchain technology: a limited governing body; powerful and growing Chinese mining presence; executing transactions at scale in a decentralized manner; inherent security risks from new technology; the rise of hackers targeting sensitive data; and growing pain risks like the recent attack on The DAO. Government regulation will provide both challenges and benefits for corporations. As is often the case with new technologies in regulated industries, the regulatory agencies have to catch-up. The United States’ regulatory bodies are learning, and their stance on permission-less distributed ledgers (like Bitcoin) it is not yet clear. For instance, the Office of Foreign Asset Controls (OFAC) and Financial Crimes Enforcement Network (FinCEN) have the right to blacklist companies interacting with cryptocurrencies (Coincenter). Jamie Smith of BitFury commented at Consensus 2016 that engaging with regulators is necessary and even advised because “the regulators can either help you or hurt you” with respect to crypto-currency and blockchain adoption.

    Despite the risks, blockchain technology has the potential to radically change countless industries and give rise to new ones. Indeed, this technology is evolving from the obscure framework behind a crypto-currency to the newest technological frontier, and we are excited to continue to watch and see how corporates invest, participate, and innovate the world as we know it.

    [linkedinbadge URL=”https://www.linkedin.com/in/maiaheymann” connections=”off” mode=”icon” liname=”Maia Heymann“] is Investor at Converge Venture Partners, an enterprise focused early-stage tech VC with investments in Chainalysis, Podium Data, SmartVid.io, Talla, Wade & Wendy and other emerging technology companies.

    [1] Chainalysis is a Converge VP investment.

     

     

  • user 11:37 am on August 14, 2016 Permalink | Reply
    Tags: , ,   

    Bitcoin Security is More than Multisig 

    AAEAAQAAAAAAAAfkAAAAJGRmNjY4ZWE1LWNlMTQtNGViMi1hMTNmLTQ1NzE1Yjg3NGZmZQ-2

    “How did multisig fail? Why did people lose their money? I thought multisig was secure.” Through the Bitfinex hack it’s become apparent that people don’t really understand #bitcoin’s multisig feature. There seems to be a lot of confusion over what multisig is and isn’t, what it inherently does or does not do. This article aims to clarify some of the most common misconceptions, explain how multisig actually works today, why policy controls aren’t a substitute for organizational #security, and what you can do to protect yourself.

    Multisig is a tool. Just like any other tool, it can be used to achieve a number of different results. This tool can be used to distribute and dilute risk of key compromise or loss, for redundancy as a backup, and to create joint-accounts where each party can spend from the same pool, or to separate duties within an organization.

    Multisig is not a security plan. It can be a powerful component of a well designed security plan, but it is only ever one component. To simply say “multisig” without exploring the implementation, how it’s being used, and what goals are trying to be achieved, is meaningless. It’s not a security incantation, though it would be so much easier if it was.

    In order to understand what it can and cannot do, we need to understand a bit about how it works. Don’t worry if you’re not a techie, this isn’t written for them — it’s written for everyone else. 1

    Creating a multisig address. In order to create a multisig address, you simply need more than one public key. Let’s look at an example. Alice, Bob, and Charlie are all organizers of a local bitcoin and open #blockchain meetup. They want to collect funds to support the meetup but don’t want any one of them, alone, to control the funds. They set up a multisignature address, using CoPay software, that allows them to select a 2-of-3 configuration, meaning two of the three of them must authorize the transaction before it will be valid. In this instance the possible signing combinations can be A&B, B&C, A&C.

    What’s actually happening behind the scenes? Their software is constructing two things: a script that contains the instructions of how many signatures are required and what public keys correspond to private keys that are authorized to sign (m-of-n), and a hash which is the bitcoin address, starting with the number 3, corresponding to the script. The script is often called the “redeem script” because it contains the requirements to redeem or spend payments from the multisig address. 2

    You can think of a redeem script as a set of permanent, unchangeable access controls. These limited access controls are embedded into the bitcoin address itself. Meaning when funds are sent to the corresponding address, the redeem script must be satisfied in order to move funds. The rules are set when the address is created and can never be changed. The rules are, literally, part of the address itself. This one of the most powerful parts of multisig, this is why many believe it is more secure than a traditional single-signer bitcoin address. When multisig is used as part of an overall security plan, it can provide additional protection against embezzlement, mistake, loss, fraud, single point of failure, by requiring multiple parties or multiple devices (multi-factor multi-sig) to approve a transaction.

    But notice what it does not do.

    • There are no spending limits; you can withdraw all funds with one, properly signed, transaction.
    • There are no time limits; you can withdraw funds immediately with a properly signed transaction.
    • There are no daily transaction limits: you can create thousands of transactions per minute.
    • There are no notifications; you will not receive an email or text notification when funds are spent.

    Policy controls are not inherently part of multisig today. At this point you may be confused because many wallets provide these types of added services. They’re advertised as additional security measures, as additional controls. What’s not so clear is that these services are implemented by the company’s software and internal policies — not by the bitcoin protocol. That’s important because it means the controls can be bypassed, the limits can be changed. While Bitcoin’s scripting language continues to evolve, and some protocol based policy controls, like lock-time, are available, they haven’t been widely implemented yet.

    The take away: today’s policy controls aren’t as secure as they may seem. In fact, they’re only as secure as the system controlling policy changes. Unfortunately, that’s less secure than most people believe.

    Sometimes keyholders automate signing, based on policy controls.Many multisignature wallets (but not all) now include automated transaction signing based upon policy controls as a feature of their wallets. In these implementations, the wallet company controls one of the keys used to create a multisignature address. That key, and it’s related signing functions, are controlled by software written by the company — the software is often called an oracle or signing oracle. At the time the address is created, in addition to the public keys, the wallet company collects the user defined policy controls. For example, a user might set a maximum daily limit of $1,000.00 USD withdraw. The address is created and the signing parameters of the signing oracle are set.

    The signing process usually looks something like this — the user creates a transaction (say for $500.00 USD), signs it, and sends it to the wallet provider for countersigning. The oracle sees the transaction, checks for policy controls (here the $500 is less than $1000.00), countersigns and broadcasts the transaction to the bitcoin network. Speedy, convenient, efficient. Secure? Maybe. Maybe not. Maybe it seems more secure than it actually is.

    Security depends on a lot of factors — not just how many keys are required to sign a transaction. It depends on processes and policies defining the policy controls: Who can change spending limits? Time limits? Notifications? When can they be changed? Is there a cooling-off period after they’re changed when no transactions will be signed? It also depends on the company’s internal security: Who has access to the oracle or signing keys? Where are the backups and who has access to those? Who writes the oracle software and is it open-source? These are just some examples of security concerns that aren’t addressed by multisig. Multisig means more than one key was used to create the address. Nothing more. It is not a euphemism for security. Alone, it’s not enough to keep our funds secure.

    Security cannot be outsourced. As an industry, we need to stop confusing outsourcing signing keys with outsourcing security. Simply turning over signing keys and process controls to a third party will not protect you or your customers from theft. We need opt-in security standards, like CCSS, and annual security audits. Most importantly, we need to focus on understanding the risks and accurately explaining them to users.

    Finally, always remember: “Not your keys, not your money.”

    Footnotes: 1. If you’re reading this article, I assume you understand the basics of bitcoin. Bitcoin is secured by public key cryptography, seehttps://en.wikipedia.org/wiki/Public-key_cryptography. 2. Technically, this feature is called P2SH or pay-to-script-hash, not multisig. However one of the most common implementations of P2SH is to achieve multisig and the term multisig has become widely used to reference this specific P2SH implementation.

    Original post: https://medium.com/@pamelawjd/bitcoin-security-is-more-than-multisig-1b55768582f3#.zh74f3cxm


     

  • user 10:40 pm on August 9, 2016 Permalink | Reply
    Tags: , , ,   

    The Ethereum fork: emergence of a social framework for consensus. 

    AAEAAQAAAAAAAAiqAAAAJDE0Y2UwMzc3LTAxMTktNDEzZi1iODViLWRiZmRiOTY3ODY1Nw

    George Orwell once said “He who controls the past controls the future. He who controls the present controls the past…” and when it comes to #blockchain, as in life, it is the writers that control the past, the present and the future. The consensus mechanism, the process of validation, verification, calculation and propagation of transactional state changing data that breathes life into our #ethereum world computer, is intended to serve one primary purpose, to rid the function of writing of any human interference, and in so doing to reduce the ability of anyone to exercise control over others. In every sense, a good philosophy. Of course it doesn’t instantly cleanse the world of corruption, or for that matter many other forms of systemic or economic failure, but it’s a step in the right direction. 

    The principle of immutability, the mathematical infeasibility of interference with data once written, which enables disparate parties to securely interact with one another in the knowledge that actions and agreements once recorded cannot be undone or reneged upon, is a core principle of any public blockchain protocol. The challenge to, and subsequent overruling of this principle during the recent DAO events and subsequent hard #fork has driven a wedge into the Ethereum community over a question that has been much debated and continues to remain divisive amongst wider communities:

    “When is a hard fork ok?”

    And so the debate must be had. Opinions and reasoning shared and disputed. Somewhere, from all of this, will come the future, it is up to us all to shape it.

    I have set out my thoughts below, generally the running order is less contentious to more contentious [he assumed, naively].

    Firstly, some context and a couple of points regarding the maturity of the Ethereum platform.

    • Ethereum can be thought of as a virtual machine within which applications run, the DAO was an example of an application. This leads us to two distinct classes of vulnerability, those associated with the user driven application scripting language (Solidity) which may affect one or more applications but do not threaten the integrity of the underlying platform, and vulnerabilities within the Ethereum virtual machine itself (i.e. the github controlled source code), which could represent a much greater systemic threat. Prior to the DAO hard fork, I am not aware of any other time a hard for has been considered to address a user created vulnerability.
    • Ethereum is still in it’s infancy. It is only one release on from a version which included the phrase “expect dragons” in the disclaimer. Additionally, Ethereum is more complex than most traditional blockchains, the Ethereum Virtual Machine is more akin to an operating system than a #bitcoin style accounting ledger (excellent that it is). Whilst the Ethereum core development community may hold itself to higher security standards than the likes of Microsoft, all experience should tell us the probability of a zero day exploit within the core Ethereum protocol at some point in the future is high. That further – and possibly fork inducing – core protocol modifications will be proposed (or worse, required) in future should be a working assumption, not a black swan armageddon scenario.
    • Beyond the core virtual machine, when considering the power now available to any platform user through the Solidity application scripting language, it is highly likely that future ‘smart contract’ applications will fail or be compromised resulting in damage. It is very, very unlikely – but not impossible – that a hard fork will be the appropriate action when such events occur (for example, to prevent massive loss of life). However, there is a point of greater relevance here, future autonomous contracts may actually decide to harm us. They may employ maliciously constructed code, or even artificial intelligence to execute decisions which violate laws, and harm people. Consider a DAO set up by a hostile nation state to offer bounty payments for acts of sabotage or violence against an adversary. Unlikely? Yes. Possible? Yes. By considering extreme scenarios, we test our fundamental principles.
    • The Ethereum development roadmap already includes plans to migrate from Proof of work to a Proof of Stake consensus mechanism (Casper) intended to establish a less energy intensive platform overhead, and to further reduce the risk of majority collusion by miners attempting to control what is written to the ledger. This requires a significant protocol update that will almost certainly involve a hard fork. 

    A reasonable conclusion from the above may be that future hard forks are certainly possible, possibly probbable, and in the right circumstances, appropriate.

    Now, in relation to the DAO hard fork, I first wanted to touch on the the format of the decision making process and it’s subsequent execution.

    • Following discovery of the attack the Ethereum community erupted with activity and opinion. It’s leaders (insomuch as a decentralised platform can have leaders) were not silent, and received both praise and criticism for opinions expressed and actions taken. I have a couple of views on this, firstly, Vitalik is considered leader of the ethereum community not because he owns ethereum, quite the opposite, because the community ask it of him. Vitalik’s flavour of leadership is a decentralised, unenforcable leadership, that’s the good kind. I read much commentary describing the recommendations of Vitalik and others towards various options as ‘centralised control’, and I disagree. Leaders such as Vitalik should express their opinions, the community needs them, they, more than anyone understand the problems, the solutions, and the risks. If Vitalik’s influence was decisive, that is a measure of the respect he has amongst the community. As long as those we look to for guidance are transparent in their communication, it is invaluable, and long may it continue.
    • The Ethereum community responded to a number of polling mechanisms in the aftermath of the DAO attack, and whilst questions have been raised over the representation and composition of voters, the measures taken appeared to demonstrate an overwhelming preference toward hard forking (this was further evidenced by the subsequent shift of approx 95% hashpower to the forked chain, note for latest stats check here).
    • Ultimately the decision to fork was taken by the community, first through a number of polls facilitated by mining pools, but ultimately, and more importantly through the action of the network participants who updated software, and shifted their network participation to an updated codebase. In so doing the community collectively crossed out a paragraph in it’s own history book, not rendering the words illegible, but irrelevant, replaced by a new paragraph, a new database state, agreed and enforced by the same decentralised and voluntary community consensus mechanism that secures the network itself.

    Next, some points on the external context to all of this.

    • The hard fork outcome will likely provide a reduced disincentive to future attackers. It also deprives the attacker of $50m (ETC revival notwithstanding).
    • Linked to the proposed future switch to Proof of Stake, allowing a known attacker to control more than 10 percent of the available currency supply presents additional systemic risks to the network, though it is likely these risks would be surmountable.
    • Rightly or wrongly, the prevailing wisdom at the time of the decision to hard fork, was that the losing fork would quickly become obsolete. I think we need to defer judgement on this point. However, there are two relevant related points worth calling out here:
    1. The publicised promotion of the ‘old’ chain (ETC) by prominent investors such as bitcoin advocate Barry Silbert have had a significant effect in bringing speculative capital inflow toward the ‘old’ chain, thereby raising it’s value and creating a self-reinfocing momentum which has ultimately fuelled division and tested the community. Whether there was an intentional element to any of this we will never know. In any case, the test was likely inevitable.
    2. The subsequent shift of hashpower back to the ETC chain (ETC hashrate is currently approx 10% of the ETH chain) appears to have followed the increase in value of ETC, indicating it may be attributable to simple mining economics, with a small proportion of ambivalent miners happy to mine whichever chain offers the highest return. Whilst this contributes to the self-fulfilling momentum described above I suspect it will also produce a downward pressure on ETC prices as miners seek to cash out as fast as possible (possibly producing a reverse effect on the ETH chain).

     

    Finally, I wanted to break down a couple of the core elements of the decision itself, and to explore what may be an emerging pecking order amongst core blockchain principles, specifically immutability and consensus.

    • We must understand that immutability itself is a means to an end. Blockchain immutability exists to ensure the preservation of truth across a community. It provides an auditable proof that events have occurred exactly as prescribed and expected, but rather than immutability for the sake of immutability, it is the resulting predictability and assurance that is so valuable to the community. When $50 million worth of Ether began to slip from the control of an autonomous program operating on behalf of a large group of investors something rare happened. The protocol, operating exactly as prescribed, deviated from what was expected, and a community watched in horror as an enormous heist was played out in slow motion, with the inherent security of the ethereum platform itself suddenly forming the greatest obstacle to any sort of restorative action (Vitalik even recommended a form of spam-attack against the network to try to slow the attack). The community, and the world at large, was exposed the dark side of immutability.
    • Consensus on the other hand, is the control mechanism, there is a difference between centralised control, and consensus driven control, with the shift from the former to the latter being arguably the reason we are all here. The events of the past month have raise one key question in relation to Consensus:

    Are we subscribed to machine consensus, or social consensus?

    • The hard fork has provided an example of social consensus overriding machine consensus. This effectively places machine consensus, and therefore immutability (in it’s technical sense) as subordinate to social consensus. Whilst this has been cited by some as an about-turn from all that blockchain stands for, I see it as the opposite, an evolution beyond fundamental ideals toward a more pragmatic understanding of reality in which we recognise and leverage all the value blockchain architecture can offer, but retain (as do all blockchain communities) a measure of power over the underlying ‘hard rules’.
    • Two further arguments against this approach that I have read and considered are 1) that by setting this precedent we will usher in an era of hard forks every time a smart contract fails, and 2) that legislators may now see the opportunity to exert political influence and compel users to implement updated features. In response to 1) There is little I can offer other than, ‘I disagree’, time will tell. In response to 2) there is no new threat now which was not present before the hard fork, regulators (or others) can at any time attempt to compel users to implement protocol changes, this remains a threat, but carries an extremely low probability of success given the geographically distributed nature of the Ethereum community.

     

    In conclusion, I recognise there is much debate about how truly representative current voting and consensus mechanisms are (that is a topic for another day), but in principle a community driven social consensus decision which reflects the totality of truth is fine by me, I am not tied to a protocol version, I subscribe to a wider social framework of decentralised control governed by social consensus within which an agreed dataset exists, and agreed code (which includes a technical consensus mechanism) operates. If that chain of community consensus holds and on rare occasions exerts the power to override the human-written rules governing 99.999 percent of the platforms’ successful operation, then frankly, I feel assured and empowered by that, not threatened. That is not centralised control, it is exactly the opposite. We are the community. We are the control. We are the writers of history.

    [linkedinbadge URL=”https://www.linkedin.com/in/tyler-welmans-b339326″ connections=”off” mode=”icon” liname=”Tyler Welmans“] is Blockchain Specialist at Deloitte Digital and this post was originally published on linkedin.

     

     

  • user 10:40 am on August 2, 2016 Permalink | Reply
    Tags: , , , ibm watson,   

    Interview with David Kenny, GM @IBM Watson, on AI, Blockchain and Design Thinking in banking 

    AAEAAQAAAAAAAAjmAAAAJDIwOGJiMTM5LWE1NTQtNDQ3Ni1hOWE5LTI0ZGMyODgyNTkyNQ

    A few weeks ago, at Viva Tech’s International Summit in Paris, I bumped into David Kenny – one of my heroes. I will tell you why: David is a man with an entrepreneurial mindset who has deserved every bit of success that he has achieved. Currently, he is General Manager of #IBM Watson tasked to build Watson into “artificial intelligence as a service”.

    I have been following David’s career since he was CEO of Digitas, a very successful digital media company acquired by Publicis Group in 2006 for $1.3 billion. At that period, I was running a small digital media company called Art House Media and, therefore, all of their moves were of great interest to me. 

    After that David moved to other demanding positions, but he is probably best known as Chairman and Chief Executive Officer of The Weather Company. I, on the other hand, moved into the financial services sector. 

    The Weather Company was acquired by IBM for more than $2 billion at the beginning of this year, and that’s when David was transferred to IBM’s Watson team.

    The reason why I told you this story is to emphasise that running a marketing and #technology agency that was helping businesses adapt to the digital age, with more data and more analytics, 10-15 years ago; as well as more recently connecting hundreds of millions of sensors to produce more than 20 terabytes of data daily for The Weather Company’s apps and websites, definitely required a clear vision of the future driven by digitisation and innovative technologies.

    So, what did we talk about?

    Since I work for one of the big European #banks, our discussion started with three early things AI can be used for in the financial services industry. 

    The first area is understanding data and rules, something Watson is really good at. When dealing with compliance, fraud detection, money laundering and all other processes commonly known as KYC, Watson is capable of looking at all the data in the public about each customer in a very private and secure way. Essentially, that ensures that banks fully respond to their responsibility of knowing everything they need to know about each customer. 

    David also mentioned that Watson was learning about #banking regulations and laws in different countries to help global banks deal with the compliance issue. Especially nowadays with Brexit, there is a new problem: Do you know that there are 10,000 rules between EU and Britain in banking? Well, Watson too needs to learn all these rules!

    David then moved on to the second area: customer connection, that is, the ability to use AI for managing text messages and Twitter accounts. In that way, Watson becomes a virtual agent that enormously helps the customer service agents by supplementing them.  

    The third is predictive models. Banks need to predict what the customer might need next and what information they might find useful. This is about personalisation – but with structured data. With Watson, it is possible to process so much more data; find out what is happening in someone’s business, in their environment, in their economy, in their life – so that banks can be ready to help them. 

    Inevitably, our next topic was #blockchain. David told me that IBM had invested literally billions of dollars in research. They think that blockchain is really an important technology since it enables us to keep track of absolutely every transaction – banks in particular need to know that data or currency is in the right hands. Another advantage is that the sender and the receiver can be verified at an enormous scale!

    IBM thinks that blockchain needs to be baked into all of the Watson systems we have mentioned here because they do not do AI from search – which is very much about public knowledge. They are Watson for private data and, thus, need blockchain to make sure the data stays private and is only exchanged and secured by the right person on the other side. 

    Please note that IBM donated all of their blockchain technology to the Linux foundation because they want it to be an open source and they want everyone to use it. The aim is to make data more useful so that AI can work on private data, rather than just on the data available in the public search grid.   

    And, why is data so paramount? For two reasons. Firstly, the higher the quality of the data, the better AI algorithm results are. Secondly, that, in turn, helps us make much better decisions. Therefore, the data banks possess provides true competitive advantage!

    I learned that 80% of the world’s data was held within companies and organisations! Only 20% is stored on the Internet. Did you know that?

    Can you see now how we can improve our business significantly by employing new AI technologies to access data from all three: proprietary, third-party and public sources?

    Of course, I could not let David go without asking him about his view on design thinking. In my previous post “How to ignite creativity and flair for innovation?”, I talked about a large-scale transformation IBM had undertaken to replace the company’s engineering and sales culture with the innovation mindset by bringing in design thinking. 

    David revealed to me that he himself was also a great believer in design thinking, and explained that it was the belief of Ginni Rometti that we were moving to a world in technology that was no longer B2B, but rather B2I (business-to-individual), that led to IBM’s transformation. 

    All this is highly relevant to us in the financial services sector as well, but I will leave if for one of my future posts. In the meantime, think of B2I as marketing on the individual level. The philosophy behind it is that companies should better tailor not just their products, services and go-to market strategies, but also their whole business models to the individual buyers’ wants and needs due to the rapidly shifting digital market and buyer behaviour. 

    David said that it was already possible to see that new approach in how they were working with Watson. Today at IBM, they actually start every project with design thinking to make sure they know the persona of the user and that their technology fits the user’s life. 

    They begin the design thinking process with the following questions: “How are our clients using the product? How is their day spent? What is the right way to connect with them? What is the right content to connect with them?”

    As a result, as David pointed out, although their main task is to show how AI can help their clients, they are also making sure that technology itself is not a barrier, that they are communicating in a normal language, that it is easy to find the next thing and that they are not overwhelming people with too much information.

    Thanks to design thinking, in Watson’s case, they took into consideration the end user – the retail customer; the decision maker; and the growing group of developers. Since the banks are increasingly bringing in tech people to work on machine learning, IBM made Watson easier for them. All they have to do is just take an API and use it. As straightforward as plug-and-play!

    At the end, I asked David to tell me what he thought about the use of design thinking in banking. Without hesitation, David stated that design thinking was actually essential! Then he explained it further: “The banks are built on trust. Your reputation is very trustworthy. Trust will grow if you bring it all together – if you look for business solutions from various perspectives, empathise with users, and address various stakeholders. Design thinking is used to build trust.” – What a fine answer!

    [linkedinbadge URL=”https://www.linkedin.com/in/deandemellweek” connections=”off” mode=”icon” liname=”Dean Demelweek”] is Agent of Change & Innovation Catalyst | Tech London Advocate and this post was originally published on linkedin.

     

  • user 6:00 am on July 25, 2016 Permalink | Reply
    Tags: , ,   

    Another Blockchain Healthcare Distruptor: Shifting Wealth from Carpetbagging Recruiters to Providers 

    AAEAAQAAAAAAAAdqAAAAJGQ0ZTI0ODZmLTk3MTAtNDZjOC04NTYzLWFlY2JlMGYyZGQ1ZAThe US #healthcare credentialing and recruiting industry is unnecessary. Currently over $16 billion dollars a year flows to intermediaries and the industry is projected to grow at 6% per annum given changing demographics and emerging healthcare policies. These intermediaries or opportunistic carpetbaggers are largely exploiting inefficiencies. If applied properly, the #blockchain could potentially displace the need for credentialing and recruiting firms.

    Doctors, nurses, and allied health and other healthcare professionals do not own their individual professional “record” or credentials.  Thanks to the blockchain, now for the first time these providers have an opportunity to take back (or self-govern) what is theirs, save the industry billions, and enhance their wealth.

    It is time to build a “provider-centered” credentialing, recruiting, and reputation system. The blockchain is exactly what the doctor, PA, or NP should prescribe for themselves.

    Healthcare is riddled with hundreds of intermediaries who profit from the inefficiencies in recruitment, employment, credentialing, privileging, and on-boarding.   Verifying credentials, let alone reputation, is a complex process as there is no central source for these services.

    Gone are the days when providers attended just one healthcare educational institute. Healthcare professionals attend multiple educational institutions, training and certification programs, and on-going continuing education courses to keep up with licensing requirements and the latest in medicine to ensure the preservation of quality and advancement of care. These programs and new models of education and online schools have complicated the process of verifying credentials, hiring, and privileging healthcare professionals.

    Manual validation of all records from the plethora of brick-and-mortar and virtual institutions is a complex, time consuming, and highly inefficient process. Consequently, a myriad of healthcare compliance, recruiting, and consultancies have positioned themselves right in the middle of this profitable mess to manually validate credentials, references, etc., unnecessarily driving up healthcare costs.  

    The solution?  A healthcare provider credential and reputation blockchain. One of the core characteristics of blockchain #technology is the elimination of the middleman or intermediary.  The healthcare provider credential and reputation blockchain would record and maintain the immutable and authentic record of a doctor, nurse, or other healthcare professional’s credentials and reputation, providing the industry with one open record of providers’ educational attainment, licensing, and professional reputation, thereby eliminating the need for middlemen.

    Moreover, it is envisioned that this same credential and reputation blockchain would be used by educational institutions, hospitals, clinics, continuing education programs, certification groups, law enforcement, etc. Essentially these institutions become “peers” on a peer-to-peer network or blockchain. Participating in the blockchain would earn these institutions digital currency for validating and adding “blocks” to the network that are linked to digital educational certificates or other authentication constructs issued by the institutions.  These blocks would be a permanent record and might include expired notices for timed-boxed credentials.

    The blockchain may also include apps that patients and provider institutions might use to post permanent and authenticated reviews of a providers’ performance, establishing the provider’s “reputation” equity.  These review block posts would come at an expense to minimize fraudulent reviews. Additionally, existing social network “kudos” such as recommendations and endorsements on LinkedIn could be posted to augment the official record.

    Each provider would carry a digital credential portfolio on their smart phone or tablet able to control access to hiring institutions and licensing boards for a fee. Other potential types of data that could be recorded on the blockchain including performance reviews (positive or negative), sanctions, civil lawsuits, and misdemeanors and convictions. 

    The blockchain could also be extended to include hospital privileging and payer enrollment certificates (for billing and reimbursement) simplifying the onboarding process and movement within hospital systems.

    Now, more than ever before, healthcare professionals are in a great position to unite and reclaim their credentials and reputations by way of a healthcare provider credential and reputation blockchain system that puts them in control of what is rightfully theirs.

     [linkedinbadge URL=”https://www.linkedin.com/in/cyrusmaaghul” connections=”off” mode=”icon” liname=”Cyrus Maaghul”] is founder at HealthCombix and PointNurse, and this article was originally published on linkedin.

     

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