Looking for Blockchain use cases in our daily life, we came across the idea of using Blockchain for parking tickets. To move this idea further we are presenting it to the GTEC Blockchain contest taking place in Berlin in the coming weeks.

Please support and follow us for this event: 

As mentioned by Professor Michael Mainelli in a recent Coindesk article, long term smart contracts will take a while to take off:

At least in the near term “dumb and short-term contracts” will prevail over “smart long-term contracts”

We had for sure this idea in mind using the Ethereum technology for parking tickets! Difficult to have simpler and shorter term contracts...
Then the next question could be: "... nice but why do you then need a Blockchain technology for a parking ticket?  isn't it an over kill ?"

After exploring the concept, which was to be honest at the very beginning rather a technology show case, we see a number of benefits using a Blockchain technology. Just to mention a few:

• Services provided: the Ethereum platform comes among many other things with a distributed database (no need to bother about replication), with sealed transactions (no need to implement this ourselves) and is fully hosted with a very granular pay per use mechanism.
• Trust: for monetized services and pre paid accounts, trust is an important factor. Ensuring that the technology is proven and trustable and that the accounts are distributed and not owned by a company breaks a large obstacle for customers to trust the service.
• Eco system oriented: because of the shared ledger, all stakeholders can equally and transparently interact in an eco system. It is a platform of choice for collaboration. This aspect develops further overtime when the different participants integrate more natively the shared ledger in their own infrastructure.

Through this simple example, we got even more convinced about the Blockchain potential and are now pursing this idea further. We'll keep you updated on the next steps!

For now, thanks for supporting and following us for the GTEC event and find some more information on parkCoin here.

Smart Contracts : a new development paradigm

I am unfortunately old enough to have lived a number of paradigm shifts. In particular the shift from procedural to object-oriented programming and from monolithic to distributed to name a few. 

I remember in particular once looking at the architecture of a Corba project (Distributed objects) and realize to my great surprise that this object oriented technology had been used in a very conservative way. It was not at all taking advantage of the object paradigm, but just using this distribution framework as a regular Remote Procedure Call framework. It was not addressing directly the different object instances but rather rebuilding a layer in charge of dispatching calls to the requested objects.

Looking now at Ethereum I feel the same could happen. People may not realize that the Smart contract are changing deeply the way we will architect software: instead of being data driven code will become process driven with a much finer granularity. Alike object oriented programming which broke monoliths in small pieces, smart contracts will do the same for processing data.

Let’s take a concrete example: a bank will represent a portfolio in a database with a table having multiple columns for the various attributes. Processing a specific event on the portfolio like performing the life cycle of the instruments is currently implemented as a SQL Statement selecting the relevant data, followed by some processing transforming the data as needed. This first process will be then followed by others similar in nature. This computation is data driven : we select the data on which we want to apply the process.

Before Object Oriented programming, we were doing something similar at the model level: in the procedural approach all the different cases were merged into the same program which was handling all possible cases through batteries of switches. Object Oriented programming brought a much more granular approach: all specific cases were handled by specific objects making the code much more readable and easy to maintain. If this granularity was much better from a model point of view, the processes, often run in batches, even if running programs written in an object oriented way were still monolithic from a process point of view.

This is the process dimension that the smart contracts are addressing: those independent pieces of code are handling the life cycle of objects in a same granular way as the objects did for the data model years ago. Instead of grouping the processing of all transactions belonging to a portfolio, the smart contracts representing each portfolio line ie each transaction, will be running independently breaking down in pieces the monolithic approach we still have in writing batches.

This will have a major impact on how we implement processes: we will not scan data to find the relevant data which needs to be processed for a particular event, instead we will have autonomous small pieces of code implementing the process logic at the smallest possible granularity making these processes easier to understand and manage as object oriented simplified for ever the way we model software.

Internal use of Blockchain ?

It has been mentioned already by some banks like UBS that they were considering Blockchain technology also for their internal use.  Mizuho also announced following this approach a few days ago.   

This may be strange but it has to be known that large banks operate as a vast network of more or less separate legal entities. As the financial products got more and more complex and as banks have been trying to rationalize their setups, they have tried to centralize product and risk management in few centers around the globe. But they have still to book the trades with the customers locally because a customer may not wish to transact overseas. Therefore they massively replicate trades between their internal entities.

Replicating trades is not straightforward : it does not mean only to copy the trade details, it also means to have the same interpretation of the trades and have the same life cycle for the original trade and its copy.

To ensure this, banks have attempted to share systems (frontoffice, backoffice, sometimes accounting) among geographies in order to not replicate business logic. Nevertheless data is replicated which means that it has to be reconciled...and this all along the trade's life.

Indeed sharing a global ledger internally between the sometimes 100+ entities could bring a lot savings. Having the same trade representation and life cycle among the different entities which are selling products and managing products will simplify greatly the trade management. 

Blockchain technology will develop by steps : it cannot replace a full ecosystem built over decades overnight. Therefore it will start in areas where there is less existing systems. For sure, using this technology internally is much easier to decide than trying to convince a whole industry to migrate to a complete new system. Banks proceeding that way will gradually increase their expertise and knowledge and will be ready sonner to propose this kind of service to their customers.

Season greetings 2016 !

Blockchain technology has been blooming in 2015, let's see how all those products will hit the market in 2016. Lot of fun and excitement in perspective !

All the best for 2016 !

Blockchain deploiement

A very promising technology

As mentioned already a few times here, Blockchain is a very promising technology in particular for financial services. In a recent study the consulting firm Oliver Wyman suggests that using Blockchain, banks could save per year by 2020 between 15-20B$ in infrastructure costs.

In the recent finnovasia meeting Stephens from UBS confirmed that blockchain will bring a real disruption 

But some limitation factors
 
This will not be achieved without using the technology at its full scale: the less native is the implementation, the more effort will be needed to ensure consistency with the existing systems. But there are some factors limiting the full adoption: some ecosystems are pretty complex. Securities for example, involves a lot of actors working together (clearer, exchanges, custodians, brokers, ...) which means that a full native implementation requires an agreement among all these actors on one standard.

Those ecosystems have been incrementally built over decades if not centuries. As described in a previous post, banks will need to define an integration strategy to gradually expand the blockchain grip.

Not a global deployment but some starting points identified

If a global deployment of such disruptive technology is quite unlikely (also due to the blooming technology offerings), in the finnovasia session about blockchain, as reported by Coindesk some starting points have been identified :

• Stephens for UBS said that blockchain will replace several hundred of internal ledgers.

• Alex Edana form WIP Solutions CEO said : "Australia will be the first market on the blockchain in three to five years," he said. "There, you only have [a small number of] banks and a couple exchanges."

This reinforcing the idea that the smaller, the easier. Small eco systems like Australia with less legacy will adopt blockchain faster.

It also shows that there is a benefit for large organizations to adopt such a technology internally in order to rationalize their internal processes. Remember that large organization do a lot of trades internally in particular between sales and trading center. Those trades are booked in each branch and need to be reconciled all time.

 

Hype curve ?

Hype curve @Wikipedia

This phenomenon in technology adoption is very well known. Blockchain will make no exception: the hype will grow and as first implementations will be partial, returns will be disappointing and hype will drop massively. Then little by little the small scale projects will demonstrate returns and will grow incrementally.

"Rome was not built in one day"

Why nations fail ? ... and why companies fail ?

Why nations fail ?

In this very inspiring book, called why nations fail ?, Daron Acemoglu and James Robinson demonstrate with a number of in depth examples that disappeared civilizations have failed because they have not been able to incentivise their citizens in creating value. 



Extractive civilizations are the ones where the elites try to extract the larger value from the citizens without giving any thing back. Value is extracted not only through taxes but also in redirecting towards the elites all the possible value, controlling monopolies, not respecting property and in some cases not even respecting the human rights of their citizens. 

In such a context, why should citizens be motivated in putting huge efforts in generating value when this value will be captured by the elite ? 

Among the number of examples brought by the authors to illustrate this theory, one is  fascinating : the Venice republic. This small town has been able within a very short time to expand its influence to whole Mediterranean area and in an even shorter time, they have collapsed completely !

Why ?

The reason why Venice republic has been so successful is that they have invented an inclusive governance in which the citizens were paid back from the efforts they put for generating value. As an example, Venice republic invented the joined venture: a shared model between navigators and merchants was in place to incitivise navigators to explore and trade with remote countries. Back to Venice those successful explorers were getting a reasonable part of the cake and were gaining influence within the city as the governance model was open to new comers. 
This illustrates the creative destruction coined by Joseph Schumpeter. 
Of course, creative destruction comes at the expense of established players and this is the very reason why elites are getting increasingly reluctant to support such an approach. They have climbed the ladder and they don't want to be challenged or even worse to be replaced by new comers.
This is exactly why, after years of success Venice republic failed : governance changes stopped the inclusion of new comers establishing a status quo among the established players. This froze innovation and growth and lead extremely rapidly to the decline.

What about companies ?

A strong parallel can be made with companies which are somehow similar to states : they set up  a governance  model which can be more extractive or more inclusive. Normally when they are small, they favour initiative and growth and tend to be more inclusive. Later, being established, they become extractive, extracting the more value possible from their employees and keeping the status quo as much as possible making them becoming in the end irrelevant. 

This theory about inclusive vs extractive approaches also explains the success of transformational leadership which aims at developing employees instead of only extracting value from them.

Goldman Sachs patents blockchain technology for Securities

Securities settlement  is a rather cumbersome process coming from the old days when securities were still materialised. The whole process is still needing some days to complete (between 1 to 3) generating some credit risks in the meanwhile.

Streamlining this process is therefore not only important from an efficiency view point but also from a credit risk perspective. If delivery versus payment is processed immediately,  it will optimise the processing costs and reduce the credit risks.

This is why Goldman Sachs put some efforts and investments in that mater which lead to issuing a patent which has been recently validated.

The idea here is to create a new currency called SETLcoin which will represent any kind of securities (called PIC in the patent). These new coins will be exchanged against other coins like bitcoin.

The patent is describing a coordinator which will ensure the simultaneous completion of the two transaction legs (money against securities).

This reinforces the view BNP Securities has shared in a research paper earlier this year, the securities industry is going to be severely impacted by the blockchain technology. In this paper, BNP presents two possible scenarios : a complete disruption where the market participants trade directly without any central body or a more conservative one where the established actors will embrace blockchain technology.

This patent has been filled something like one year ago and demonstrates how much interest the established actors have for this technology.

Goldman recently confirmed its forecast regarding the disruption blockchain will introduce, this post also shows the amazing investments the blockchain technologies have attracted.