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BBVA Can't Hold Cryptocurrency – And That's a Problem

After becoming the first financial institution to combine public and private blockchains in a live transaction, Spanish multinational bank BBVA has hit something of a quandary.

Specifically, it’s unsure how to take its forward-thinking work … forward.

In the process of executing what was expected to be the third in a series of blockchain-based corporate loans, the bank had to work around a lack of legal and regulatory clarity over whether it could (or should) hold the cryptocurrency needed to power a transaction on ethereum.

In short, BBVA’s innovation is meant to act like a public notary service, combining private Hyperledger technology (used to negotiate the loan) with a public blockchain (in this case ethereum) in an effort to identify and store each loan agreement with auditability.

However, erring on the side of caution, BBVA chose to abide by European Banking Authority (EBA) recommendations and not use the native token of ethereum, ether, which also serves as a kind of fuel to update the ledger. Instead, the bank anchored the loans to an ethereum testnet, a blockchain which simulates the live version, but that doesn’t move real value.

No big deal, you might think, but this uncertainty is hindering the hard-won innovation work.

Alicia Pertusa, managing director of corporate and investment banking at BBVA, said that according to the EBA recommendations of 2014, European banks are discouraged from owning, buying or selling cryptocurrencies. She pointed out that the process BBVA used for the loans was exactly the same as it would have been on the live ethereum, the only difference is it would need the regulator’s approval before using the real ether.

While the Bank of Spain, the regulator in this case, would not go on the record, it’s clear regulators understand banks may need or want to have small amounts of crypto, not as an asset or an investment, but to validate transactions.

Regulators tend to point out that the EBA 2014 recommendation is not legally binding and thus is not a formal ban. Still, the compliance department of a given bank would have to judge whether this particular use of cryptocurrencies is advisable.

Pertusa told CoinDesk:

“We do think that regulators are evolving in the way they look at cryptocurrencies and in this case in particular we have talked with our regulators. They understand very well that the use of gas and ether in this kind of network is very different from the speculation of cryptocurrencies.”

Regulatory requirements

Still, the results are a rare, tangible example of how inconclusive guidance, combined with big-bank jitters about the possibility of plans going wrong, are having an impact on innovation.

Only in March of this year, EBA chief Andrea Enria said it would be more effective to prevent banks and other regulated financial institutions from holding cryptocurrencies, rather than regulating the tokens themselves.

In a statement to CoinDesk, the EBA said: “The EBA has issued several warnings to consumers regarding virtual assets and has discouraged financial institutions from gaining exposures to such assets in view of their high-risk nature. However, as a matter of EU banking law, there is no prohibition on financial institutions gaining direct or indirect exposures to such assets.”

None of this lessens the irony that BBVA is doing real corporate loans – €75 million to technology company Indra in April; followed by last month’s €325 million to oil and gas company Repsol; and last week €100 million to construction firm ACS – but is uncomfortable holding a few dollars worth of ether because of mixed signals from regulators.

In fact, BBVA’s corporate loans platform achieves a number of regulatory goals, such as making the pre-trade negotiation of the loan – which is normally done with a mix of phone calls and messages – a single, transparent and easily audited process. And the lessons learned from the tethered loans will be taken on into BBVA’s blockchain syndicated loans project, which will launch in the coming weeks.

As far as the public part is concerned, Pertusa acknowledged that while public blockchain notarization is a powerful tool for those who know how to use it (there is lots of appetite among the bank’s clients for this tech, she said) there still needs to be plenty of education elsewhere.

She told CoinDesk:

“We see this as the future of public notaries because at the end of the day it’s a public record of an agreement that’s been reached privately. But a lot still needs to happen in that direction in terms of regulation, admitting that this public blockchain has the same value as a public notary.”

A popular use case

Turns out public blockchains are a popular tool for anchoring data – that is, creating a timestamped proof that the data existed at a certain time –  in the world of enterprise ethereum.

Kaleido, the partnership between ethereum development studio Consensys and Amazon Web Services, found that enterprises wanted to anchor private blockchain applications on the public chain more than just about any other blockchain-as-a-service feature.

Indeed, a poll of Kaleido blockchain cloud users saw this use case come out on top with some 37 percent of votes.

The results mirror what we are hearing in our client and partner discussions around the world,” said Kaleido founder Sophia Lopez.

Asked what he thought of the uncertainty facing banks looking at public blockchains for this purpose, Steve Cerveny, CEO of Kaleido, said he was aware of the issue and is in discussion with customers about it, adding that a workaround is in the offing.  

“We are currently exploring how Kaleido’s pinning/tether feature as-a-service could alleviate this concern,” said Cerveny. “For example, they pay Kaleido in fiat for this optional feature and Kaleido handles all of the technical details including ether/gas.”

Speaking on behalf of the Enterprise Ethereum Alliance, Conor Svensson, blk.oi founder and EEA standards chair, said the conundrum demonstrates why financial organizations are far more comfortable working with private blockchain deployments.

He concluded:

“It’s where they can exert a much higher degree of control over the network and are not bound by the same regulatory concerns that apply whilst working with the public blockchains.”

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How Commerzbank Is Throwing Out the Business Blockchain Playbook

With a plethora of business blockchains vying for prominence, banks are under increasing pressure to pick a winner – after all, without network effects, surely the benefits would be lost?

While that might be conventional wisdom, Commerzbank AG, one of Germany’s largest financial institutions, is taking a different tack. Rather than choose one protocol on which to build proofs-of-concept, it’s chosen five.

It started out a few years ago building on MultiChain, before adding BigChainDB to its development process. Since then it has joined three consortia: Hyperledger, R3 and, as the company revealed this week, the Enterprise Ethereum Alliance (EEA).

But the strategy is not about building a broad base of knowledge or “hedging one’s bets.” Nor is it about employing a scattershot approach in the assumption that, the more platforms you work on, the more likely it is that you pick the “right” one.

Rather, according to the company, it’s about a firmly-held belief that the future of blockchains is interconnectivity.

As Paul Kammerer, co-founder of Commerzbank’s blockchain lab, told CoinDesk:

“We strongly believe that there will be not one blockchain solution, there will be a lot of blockchains – the big challenge is that these blockchains talk to each other.”

The advantages of this pluralist approach are likely to become more apparent, given the increasingly interconnected use cases of supply chains, cross-border payments and others, especially as the technology evolves and trials become more collaborative.

For instance, Commerzbank, as one of the largest trade finance houses in Europe, has participated in the development of two trade finance-focused blockchain proofs-of-concept – the Batavia platform based on Hyperledger Fabric and Marco Polo, which is based on R3’s Corda.

But rather than see the multi-platform approach as a dilution of its efforts, the bank sees it as future-proofing the investment, as well as an expansion and strengthening of Commerzbank’s expertise as it applies to new technologies.

Keeping it close

But this ecumenical approach to blockchain networks isn’t the only way in which Commerzbank is further departing from standard enterprise blockchain practice.

In spite of the expense of working on several protocols at the same time, Commerzbank made the decision early on to keep platform development in-house.

Jörg Hessenmüller, head of development and strategy for Commerzbank, explained:

“It’s not enough that we have a bunch of consultants telling us what is the latest in blockchain – we need to have our own skin in the game.”

The company’s blockchain lab has 23 developers, up from five a few years ago, and is working on increasing that number, in part to be able to add new protocols to its portfolio.

According to Kammerer, the decision of which platforms to add will depend on the use case. And some of the criteria choose a protocol based on include: its permission restrictions, consensus mechanism, scalability, whether or not it can develop smart contracts, the degree of decentralization and the other players involved the specific use case, he said.

“There is not one silver bullet blockchain that is good for all future use cases,” he explained. “We think of a specific use case, and go for the best blockchain for that.”

Commerzbank normally aims to have 10 active use cases on the go at any given time, Hammerer continued, and the list of blockchains his team is working on reflects those needs.

“The biggest challenge,” he said, “is getting trained on the specific platforms of technology.”

To deepen its knowledge of Corda, for example, the company went as far as embedding developers in the open-source Corda team at R3.

A wider net

While Commerzbank may be a blockchain maverick among banks, it wants to make sure that the technologies it picks will connect it not only with other financial institutions but with enterprises in a variety of sectors someday.

This mission was reflected in its decision to join the EEA. A consortium comprised of more than 500 startups, financial institutions, large corporations, universities, public bodies and even central banks, the EEA was formed in early 2017 to develop standards and other tools for business applications of the ethereum protocol.

Rather than focus on applications for a specific sector, the EEA’s objective is to support development and interconnectivity of private versions of one particular blockchain across a wide range of sectors and use cases.

“While Corda, for example, was built to meet the requirements of the financial services industry, we needed to find further solutions more focused on cross-industry collaborations, like the Enterprise Ethereum Alliance,” Kammerer explained, adding:

“We joined to enhance our cross-industry cooperation.”

And that cooperation even extends into the concept of central bank cryptocurrencies – even though the possibility of disintermediation from this technology is generally seen as an existential threat to most commercial banks.

Hessenmüller, however, was candid about his, and more broadly Commerzbank’s, openness to the idea.

He believes that central bank money on a blockchain is not only a likely outcome, but a crucial missing ingredient for making blockchain applications more useful for everyone involved.

Speaking to that, Hessenmüller said, “We need to find a solution that includes money transfer in the ledger, backed and controlled by central banks. This will not happen tomorrow – but several central banks are seriously investigating this topic, and it could be one of the game changers.”

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Enterprise Ethereum Alliance Unveils Common Blockchain Standards

The Enterprise Ethereum Alliance announced the release of a common technical specification on Wednesday, fulfilling a pledge the group made less than a month ago at an event in London.

Enterprise Ethereum Client Specification 1.0, unveiled during CoinDesk’s Consensus 2018 conference in New York, comes weeks after Jeremy Millar, a founding board member of the 500-plus-member group, spoke about the importance of common standards as a way to connect development efforts across the enterprise-focused, ethereum-based initiative.

It’s a significant moment for the group, which launched at the start of last year with backing from major corporates like British oil giant BP, Wall Street bank JPMorgan Chase and Microsoft, as well as stakeholders in the blockchain work such as ethereum startup studio ConsenSys, Nuco and BlockApps, among others. CoinDesk first reported on the group’s work in January 2017.

In statements, representatives from the initiative framed it as the result of a months-long collaborative effort between different stakeholders and one that widens access to the software.

Ron Resnick, executive director for the EEA, said of the release:

“The EEA’s Enterprise Ethereum Specification is the result of 18 months of intense collaboration between leading enterprise, technology and platform members within our technical committee. This EEA open-source, cross-platform framework will enable the mass adoption at a depth and breadth otherwise unachievable in individual corporate silos.”

Indeed, Resnick spoke about the work during a recent interview with CoinDesk, pointing to the process as one aimed at connecting the different software clients developed by group members.

“All the ethereum client companies see the need to agree on these building blocks and components and how they talk to each other, because if we don’t, then we don’t have a way to compete against the proprietary solutions,” he said at the time.

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Enterprise Ethereum Alliance Is Back – And It's Got a Roadmap to Prove It

Since its formation nearly a year and a half ago, it’s safe to say that the Enterprise Ethereum Alliance (EEA) has been quiet.

Apart from a steady stream of new members, there has been a lull of live projects, one that has led some to theorize the consortium might not deliver on standards for enterprise use of the world’s second-largest blockchain. In a Medium post last month, for instance, the CTO of competing DLT consortium, R3, even went so far as to stake such a claim, contending that the lack of progress proves ethereum is unsuitable for enterprise.

But if competitors were eager to send the EEA to an early grave, Wednesday might mark the consortium’s rise from the dead, as the company has revealed the release of a new guide outlining its open standards work.

While this is just the first step in making public work that could make enterprise blockchains based on ethereum interoperate with each other, it comes as businesses are broadly beginning to acknowledge it’s time to move any proofs-of-concept toward viable blockchain products.

Case in point, the consortium itself has swelled to more than 500 firms – ranging from global banks such as BBVA, Credit Suisse and JPMorgan to blockchain startups and traditional tech providers like Microsoft.

Yet, Ron Resnick, the EEA’s first executive director who was hired in January, used this diverse membership to argue that reaching a standards reference model in a year and a half is comparatively fast going.

As the former president of WiMAX Forum, which was created to promote interoperability between the wireless communication standards developed by the IEEE Standards Association, Resnick has been through the gamut when it comes to standards in the telco space.

He told CoinDesk:

“If you look at other standards bodies it can take about three years. In fact, at the IEEE you get four years to deliver something.”

Plus, he continued, standards developing is a slow and methodical process (one that many crypto entrepreneurs, who are used to the fast pace of the industry’s permissionless innovation, have shied away from).

But it’s one, that if done right, will offer plenty of benefits.

“All the ethereum client companies see the need to agree on these building blocks and components and how they talk to each other, because if we don’t, then we don’t have a way to compete against the proprietary solutions,” Resnik said. 

Milestone ahead

Still, the EEA is “working aggressively” to deliver on its roadmap, with the whole process coming to fruition before the year’s end, Resnick said.

As a first step, the architecture stack EEA has published comprises five layers. From the bottom up, there’s the base-level peer-to-peer network protocol layer, and on top of that is the core blockchain layer, which organizes consensus, transaction execution and data storage (on-chain and off-chain).

Sitting on top of that is a layer devoted to privacy and scaling, again in an on-chain versus off-chain capacity. Then a tooling layer handles things like permissioning credentials and how oracles interact; topmost is the application layer.

Today’s publication of the enterprise ethereum architecture stack will be followed “very shortly” by the spec, Resnick said. That, in turn, will be followed by a testnet and after that comes the establishment of a certification program.

But enterprises also seem interested in using public blockchains, so the EEA is making sure a general confluence happens between the public ethereum network and the private enterprise blockchain work.

“They have seen our stack, they know what’s needed for enterprise,” he said. “As this grows, even if it’s a private network, that network can actually connect to the [public ethereum] mainnet – which a lot of folks want to do.”

Referring to specific use cases such as clearing and settlement in financial services, Resnick said the foundation recognizes the needs of enterprises and will implement and deliver work contributed by members.

And the consortium hopes to return the favor. At a recent talk at London’s Blockchain Expo, EEA founding board member Jeremy Millar said it’s likely some EEA features will be taken back into the code for the public ethereum blockchain in the form of ethereum improvement proposals (EIPs).

Privacy challenge

Still, a key challenge for EEA is the fact that ethereum was designed for public use, and so fully broadcasts transactions to all nodes in the blockchain. This means the tech has to be modified for much of the privacy-centric enterprise world – as opposed to custom-built DLTs like Corda or Fabric.

This was one of the main reasons R3’s Brown claimed ethereum and enterprises can’t mix.

“Ethereum works on the basis of sharing all data with all parties,” he wrote, calling a public network the “wrong architecture for business.”

And Resnick acknowledged that “the biggest debate I’ve seen internally” within the EEA has been about how to deal with privacy. Discussions are ongoing about how much data needs to be communicated in particular cases and the extent to which privacy will be mandated, he said.

What’s more, the European Union’s General Data Protection Regulation, which aims to give better control to EU residents over their personal data and so limits what businesses can do with that data, further complicates matters.

“I suspect that you are going to see multiple flavors of how privacy is implemented,” Resnick said. “I don’t think that’s a problem. But I think it’s still open-ended and not crystal clear, even by the regulators, with things like GDPR is just coming out.”

To address the problem, the EEA architecture stack’s privacy layer will manage mechanisms to choose which data can be broadcast to the chain and which transactions can take place within a trusted execution environment.

“There are different ways you can do it: is it going to be on the mainnet, is it going to be in off-chain – or a combination of both?” said Resnick. “How much data are we going to share and will have visibility, even if it’s encrypted?”

On the subject of privacy, JPMorgan Chase’s Quorum, which was last year described as the jewel in the EEA crown, blazed something of a trail by incorporating zero-knowledge proofs into its banking blockchain design. Now the word on the street is that Quorum may be spun out of JPM, and its blockchain lead Amber Baldet has since left the bank to join a yet-to-named startup.

However, Resnick confirmed that technology developed by the team behind zcash will continue to play a part in what the EEA is doing and that JPM is actively engaged in the stack.

But he was quick to add there is no favoritism in the EEA.

“I can tell you that in my world every member gets treated equally. We treat JP Morgan’s Quorum as equal to BlockApps and Clearmatics etc,” Resnick said, concluding:

“If members are not working, I’ll call them up and give them a hard time. If you don’t participate here, then when the spec is published and if it doesn’t have what you want in it, don’t blame us.”

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Enterprise Ethereum Alliance Pledges 2018 Blockchain Standards Release

The Enterprise Ethereum Alliance (EEA) intends to release a set of common blockchain standards for businesses in 2018, one of the consortium’s leading members said Thursday.

Onstage at Blockchain Expo in London, Jeremy Millar, a founding board member of the 450-member group, which boasts Accenture, JP Morgan and UBS among its ranks, provided the update as part of a talk that sought to give an overview of the general progress made by the consortium since it was first founded in 2017.

In his talk, Millar began by stressing to the audience the importance of setting common standards when it comes to technology adoption.

Millar told the crowd:

“We need interfaces to plug into. Now this might sound boring. It might not be top of mind for developers looking to launch a white paper and promote their ICO on Telegram.”

Millar went on to cite addition of former WiMAX Forum president Ron Resnick as EEA executive director as a hire that would bolster the consortium, which now has 15 employees looking at architecture and technical specifications.

Elsewhere, he said the group has seen progress on setting standards and specs relating to “oracles,” the term that denotes smart contracts meant to feed external data into blockchain systems.

Overall, it was a timely appearance, as EEA rivals R3 have recently sought to call out the group for a supposed lack of delivery on promises, with the startup even calling the state of the EEA code “moribund.” (Like the EEA, R3 is also a consortium and technology provider seeking to bring blockchain applications to global enterprises.)

The EEA would later pen a sarcastic Medium post that sought to highlight the benefits of its approach, which it has long argued is more aligned with the open-source developer movement that has sprung up around ethereum, the world’s second largest public blockchain by total value.

In this way, Millar added that it’s likely some EEA features will be taken back into the code for the public ethereum blockchain in the form of ethereum improvement proposals (EIPs).

“Next phase will be a testnet. And once we start seeing code coming out, we need certification,” said Millar.

Still, he sought to galvanize support for the effort, concluding:

“Let’s do this together as a community because we will all benefit from it. I urge you to take part in our network – it’s very affordable to join.”

Jeremy Millar image via the author for CoinDesk

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Enterprise Ethereum Alliance Appoints First Executive Director

The Enterprise Ethereum Alliance (EEA) has just appointed its first executive director.

The open-source blockchain consortium today announced that Ron Resnick, previously president and chairman of the AirFuel Alliance, will now head the organization.

According to a press release, Julio Faura, chairman of the board at EEA, said:

“Ron’s task as our first Executive Director is to build-out the organization, engage with members and foster the continued development of technical content. … Ron has the experience and background to guide EEA through this period of rapid growth and expansion.”

Resnick brings to the role more than 25 years of experience in technical, financial and business development. Prior to serving his time leading the Air Fuel Alliance, Resnick also held an executive position at Intel and led the board of the WiMax Forum – an industry association set up to develop 4G mobile broadband technology.

Talking of his new role at the EEA, Resnick said: “My focus is to drive the further development of Ethereum-based technology best practices, open standards and open-source reference architectures to evolve Ethereum into an enterprise-grade technology.”

As one of his first acts for the group, Resnick will be hosting an EEA event at the upcoming World Economic Forum in Davos, Switzerland, on Jan. 23, the release indicates.

More than 50 companies have joined the EEA in the past three months, including Hewlett Packard, the Australian Digital Commerce Association and Sberbank.

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Credit Union Trade Body NAFCU Joins Enterprise Ethereum Alliance

The National Association of Federally-Insured Credit Unions (NAFCU), a U.S. trade organization, has become the latest member of the Enterprise Ethereum Alliance (EEA).

With the move, the body joins over 300 businesses that have already signed up to the consortium, pooling efforts to build enterprise-focused distributed ledger technology (DLT) that is compatible with the ethereum blockchain.

NAFCU, which also joined the Hyperledger blockchain consortium in October, will see its cybersecurity and payments committee engaging with EEA’s members to discuss how credit unions can get more deeply involved with the blockchain ecosystem, according to a press release.

NAFCU president and CEO Dan Berger stated:

“With this new partnership, NAFCU hopes to bring critical knowledge of blockchain technology to the credit union industry and create an innovative environment where NAFCU members can inform technology firms of what credit unions need most.”

More than 50 companies have joined the EEA in the past three months, including Hewlett Packard, Australian Digital Commerce Association and Sberbank. More recently, oil and gas supply chain management platform PetroBLOQ became a member of the group on Monday.

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PetroBLOQ Becomes Latest Member of Enterprise Ethereum Alliance

Oil and gas supply chain management platform PetroBLOQ has become the latest member of the Enterprise Ethereum Alliance (EEA) .

Being developed by Petroteq Energy in collaboration with the First Bitcoin Capital Corp, PetroBLOQ joins the business-focused blockchain consortium as part of its plan to build “transformative solutions” for the oil and gas industry, said the company CEO Alex Blyumkin in a press release.

According to Julio Faura, chairman of the board of the EEA:

“We seek to attract a variety of organizations to help create enterprise-grade standards for ethereum and to drive current and future development of the ecosystem to benefit all participants.”

With members from a range of business sectors including public sector, healthcare, energy, banking and more, the Enterprise Ethereum Alliance now consists of 14 industry-focused working groups working to develop open standards and architectures around the ethereum platform.

More than 200 members have now joined the consortium, including major firms such as Accenture, BBVA bank, Deloitte and Microsoft.

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Mastercard Expands Access to B2B Blockchain Payment Tools

Credit card giant Mastercard is pushing ahead with a set of blockchain payment tools first unveiled last year, opening them up to banks and merchants for wider use.

In a press release, the company announced today that it would first be working on business-to-business (B2B) transactions with the tech, as part of a bid to “address challenges of speed, transparency and costs in cross-border payments.”

Mastercard revealed its blockchain work in October 2016, with systems aimed at smart contracts and payment settlement processes, as previously reported by CoinDesk. At the time, blockchain lead Justin Pinkham said the company was looking for collaborators to work with the company’s platform.

Now, the company is encouraging other firms to begin settling transactions through its blockchain APIs, which it says can ease some of the friction experienced during cross-border payments processes.

Ken Moore, Mastercard Labs’ executive vice president, said in a statement:

“By combining Mastercard blockchain technology with our settlement network and associated network rules, we have created a solution that is safe, secure, auditable and easy to scale.”

The company said it intends to combine its blockchain APIs with other services to allow partners to develop their own use cases. Its website also states that partners can create unique transaction types with the core API.

Mastercard also highlighted its efforts to seek intellectual property rights around its uses of the tech, as well as work with the Enterprise Ethereum Alliance on use cases “well outside the scope of Mastercard’s traditional payments environment.”

In one of the recently released patent applications, the company indicated it was looking into a uniform payment settlement system, one that could utilize blockchain as a vehicle for B2B payments.

Disclosure: Mastercard is an investor in Digital Currency Group, CoinDesk’s parent company.

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Enterprise Ethereum Alliance Adds 48 New Members

Forty-eight companies have joined the Enterprise Ethereum Alliance, including Hewlett-Packard spin-off HP Enterprise (HPE).

The list of new members is varied, drawn from the blockchain startup ecosystem as well as the IT, finance and academic worlds. Among the new members is the University of New South Wales, which this week unveiled a new consumer loyalty research initiative that sees it offering the cryptocurrency ether as a reward for purchases. In total, 200 firms are now taking part in the initiative.

It’s perhaps unsurprising that HPE would throw its weight behind the EEA, given its recent moves around the technology. As previously reported, HPE worked with distributed ledger startup R3 to develop new solutions for its client base, and by August had already begun testing with some of its customers.

Markus Ogurek, HYPE’s global financial services industry lead, said in a statement:

“Joining the EEA is a significant step for Hewlett Packard Enterprise in making blockchain enterprise-ready and accelerating our customers’ journey to production.”

First revealed in January, the EEA formally debuted in late February with the backing of major firms like JPMorgan Chase, British Petroleum (BP), Microsoft and a number of other established companies and blockchain startups.

Since then, it’s attracted new members like Japanese teleccom KDDI, the government of the Indian state of Andhra Pradesh and Sberbank, Russia’s largest banking firm.

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