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Bank-Backed Hyperledger Is Slowly Opening to ICOs

While enterprises have generally been more conservative when it comes to cryptocurrency, one of the market’s key players, the Hyperledger consortium, appears to be opening its code to edgier pursuits.

Revealed exclusively to CoinDesk this week, the Sovrin Foundation, creator of the Hyperledger Indy codebase for digital identity management (and a Hyperledger group member since 2016), intends to become one of the first to raise money by launching a crypto token using the consortium’s code this summer, effectively following through on a promise first detailed in a white paper last year.

That news may come as a surprise for those who have been following the Hyperledger consortium since it was launched under the Linux Foundation in 2015, at the time seeking to provide a repository for the many private blockchain codebases in-development at firms including IBM, State Street and more.

But running more open ICOs on the codebases under the Hyperledger umbrella has been theorized before.

Hyperledger executive director Brian Behlendorf told CoinDesk several projects are talking about launching tokens on top of the multiple codebases overseen by the group, including Sawtooth (which was contributed by Intel) and Fabric (which was contributed by IBM).

For instance, PokitDok, a healthcare API platform exploring blockchains, recently began researching launching an ERC-20 token, the ethereum standard for crypto tokens, on top of Sawtooth, Behlendorf said.

“In theory, we could even use standards developed in the ethereum community for doing tokens on top of other ledgers,” he continued.

And with distributed ledger consortium R3 and some of its member banks testing out Hyperledger Indy, could it be that financial institutions are ready to adopt a tool that’s sometimes run afoul with global regulators?

While it’s speculative at this point, Dr Phillip Windley, chair of the Sovrin Foundation, said he doesn’t anticipate banks having a problem with a crypto token – not only purchasing it from Sovrin but using it to pay other banks in their network in order to facilitate a more streamlined business.

He told CoinDesk:

“I don’t think banks are going to mind paying based on the fact that it’s going to save them from having to do a lot of work themselves. So will the banks use a token for that? Well that is the mechanism we are given them for making payments so we hope the answer is yes.”

A market for protocols

Stepping back, Sovrin believes tokens running on an open blockchain can serve as a key ingredient to its distributed identity network, one that will offer a greater functionality than a permissioned blockchain.

Under its proposed design, any identity claim verification will cost some nominal amount (on the order of a penny or so), which will then be payable in the token. Higher value claims verifications, such as college transcript requests, would cost more and involve incentivizing the network to confirm the data.

Currently, the only option for paying for verifiable credentials is traditional payment systems, but this approach has proved cumbersome and limits the market to only the highest-value credentials.

“Tokens are a little bit of Brave New World,” said Windley.

And they are, but a new world that Windley thinks will solve some of the incentive problems that have made centralized systems better bets than decentralized systems in the past.

“In 10 years, we are going to look at it and it’s just going to be natural for protocols to have tokens on them and for people to be talking about the incentive and disincentives of how to create the markets within which they operate,” he said. “Markets are one of the main ways we organize society – why would we say it’s the wrong way to build technology.”

Sovrin’s token will also be used to pay Sovrin stewards who validate and write data to the ledger, plus as an anti-spam measure to disincentive writing bad information to the ledger.

And despite the controversy surrounding ICOs at this time – whether it be the regulatory uncertainty or the scammy nature of many crypto tokens – Windley said that Sovrin has experienced no pushback from its partners so far.

“All of our partners kind of nod and say, ‘We get it,'” Windley said.

‘The gateway drug’

The idea of untangling digital identity has been a popular one, and it seems as if it’s been making some headway recently.

For instance, Behlendorf and representatives from the Sovrin Foundation met with other digital identity specialists in Mountain View, California, last week for the talismanic gathering, the Internet Identity Workshop.

During the event, Sovrin announced that IBM is joining a group of nearly two dozen stewards of the platform.

What seems most compelling to Hyperledger’s Behlendorf, though, is probing the edges of what “permissioned” means when it comes to blockchain innovation.

“How do we make it so that if you are a bank and you want to join a banking network, the technical ability to join the banking network is low, and the regulatory restrictions should be as simple if not simpler than we have today,” he said. “That should be the way we judge if these networks are sufficiently transparent and sufficiently open. There will be different answers to that question.”

One of those answers could be crypto tokens, although others – like the W3C veterans who recently launched Veres One – have opposing views about the drive to ICO.

Indeed, Behlendorf and the team at Hyperledger remain “sympathetic” to the interest in ICOs, but don’t see a future where Hyperledger itself issues a crypto token.

Still, Behlendorf is excited about pushing the notion of a “permissioned public blockchain network topology” into uncharted territory.

He told CoinDesk:

“I sometimes joked with people on the cryptocurrency side, it may be the case that private ledgers are a gateway drug to participating in permissionless ledgers.”

Bitcoin box via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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IBM Evolution: Big Blue Is Finally Getting Serious About Cryptocurrency

It wasn’t long ago that your average enterprise wouldn’t even mention bitcoin, ethereum, or any number of cryptocurrencies in public.

Instead of using the cryptographically secure tokens to streamline workflows – or even talking about doing so – some of the most recognizable enterprises in blockchain have largely confined themselves to uses of blockchain as a new decentralized database, absent any digital assets.

Slowly however, over the past several years that has started to change. Executives at large corporations have shown themselves to be increasingly willing to take public stances both for (and against) what is now a $300 billion token market.

But if 2017 was the year that companies began talking about crypto, it wasn’t until recently that enterprises have been willing to publicly use cryptocurrencies in both early-stage prototypes and live applications.

Now, it would seem the floodgates are prepared to open, with the $140 billion IBM revealing to CoinDesk that it has been meeting with executives from commodities trading platforms, large corporations, and perhaps most importantly, central banks, to explore how cryptocurrencies can help save them money and generate revenue.

“We’re seeing tons of demand for digital asset issuance across the board,” said IBM’s new head of blockchain development Jesse Lund, who was hired from Wells Fargo earlier this year to help develop the computer giant’s cryptocurrency strategy.

At the moment, that work is largely being pursued using the public Stellar platform, and its native cryptocurrency, the lumen (XLM), an partnership made public last October.

But in interview, Lund said IBM is interested in expanding the business applications of cryptocurrencies in a number of ways.

Lund told CoinDesk:

“What’s happening is there’s this emergence of a new segment that could actually be one of the biggest segments, that is a permissioned but public blockchain network typology.”

The central bank ‘big toe’

There’s perhaps no better symbol of this convergence than IBM’s early work with central banks.

Over the past year, Lund says he’s met with 20 central banks exploring the potential benefits of issuing their own fiat cryptocurrency on a blockchain.

Specifically, he described the “most durable digital asset” as one that is “issued by a central bank that represents a claim on fiat deposits in the real world,” but still maintains “some semblance of monetary policy.”

Though he wouldn’t reveal the names of most of the central banks with which he’s meeting, he described them as largely comprised of banks from the G20, an international forum with members including China, Russia, the U.S. and the EU.

Lund further described the central banks as “clients in some capacity.” Based on these conversations, he said he expects the first central banks to issue a fiat currency on a blockchain will be “the smaller ones” with a high concentration of interest in Asia and North America.

However, “the most inspiring of the visions of the central banks I’ve talked to has been Sweden’s Riksbank,” said Lund.

In December 2017, the Riksbank published a white paper detailing its interest in moving Sweden’s cash supply to a digital platform, though it didn’t mention blockchain specifically.

Still, Lund expects to see decentralized cryptocurrency converge with central banks some time soon.

“I expect that we’ll see — sometime this year — a central bank at least putting its big toe in the water to issue a digital denomination of their fiat currency into the wild,” said Lund. “Probably in a controlled format.”

Beyond currency

But IBM’s work with assets issued on a blockchain goes beyond central bank-sanctioned cryptocurrency.

By using the same technology that is allowing an increasing number of startups to raise capital on the Stellar platform, IBM is exploring a wide range of other tokens.

Lund breaks down the demand IBM is seeing into three main kinds of tokens: securities tokens that give owners a stake in the issuing company, utility tokens that give users access to a service such as phone minutes and commodities tokens that represent precious metals and other physical assets.

“We’re actually seeing a move toward the issuance of tokens that have a higher velocity that represent, for example, a claim on a portion of gold bullion sitting in a vault somewhere,” he said.

Beyond the obvious potential interest in this work from commodities exchanges, Lund said IBM is being approached by retail companies, beverage providers and energy companies looking to tokenize various aspects of their business offerings.

A fourth category of companies Lund said is approaching IBM are startups looking to raise capital, though he admits these opportunities have proved less enticing.

“We’re less inclined to do those, we like to see more maturity in the clients that we work with,” Lund added.

Beyond Stellar

So far, IBM’s work with cryptocurrencies has been largely confined to the Stellar network and its native lumen cryptocurrency, which it has used largely in cross-border payments trials.

The company itself is running nine Stellar nodes that help confirm those transactions based in locations around the world, such as Australia, Brazil, Hong Kong and the U.S. However, going forward, IBM is open to working with any number of blockchains.

The most serious of that work appears to be with the Sovrin Foundation that contributed the original codebase of Hyperledger Indy, and is now preparing to issue a crypto asset in an ICO.

While Lund didn’t reveal details about that work, he indicated there is an early-stage partnership forming with the non-profit organization. More news, he said, is expected shortly.

From there, IBM’s work with cryptocurrencies even further converges on its work with permissioned blockchains.

In Janauary, IBM Research published a detailed white paper that described their work to apply a transaction model used by bitcoin into Hyperledger Fabric’s underlying chaincode.

Designed for purely experimental purposes to help compare transaction through-puts in the permissioned blockchain to those on public ledgers, the “Fabric Coin” effort resulted in improvements that were included in the Hyperledger Fabric 1.1 released earlier this month.

In this way, Lund expects to see further business opportunties between public and private blockchains continue to develop.

He concluded:

“We’re going to see a lot more convergence between those two ends of the spectrum. The bitcoin and cryptocurrency space that has been hands-off for enterprises and the private, country club blockchain space that is on the other side.”

IBM image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.