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The Financialization of the Crypto Ecosystem Is Accelerating, Expert Take

In our Expert Takes, opinion leaders from inside and outside the crypto industry express their views, share their experience and give professional advice. Expert Takes cover everything from Blockchain technology and ICO funding to taxation, regulation and cryptocurrency adoption by different sectors of the economy.

If you would like to contribute an Expert Take, please email your ideas and CV to george@cointelegraph.com.

For crypto maximalists, the idea of banks getting involved in cryptos is contrary to the very principles on which Bitcoin was created. Cryptos are supposed to replace banks, not enrich them. But the reality is that cryptos are not yet ready to take over a financial system that took decades to develop. Whether crypto supporters like it or not, cryptos will have to adapt to existing regulations.

Even crypto maximalists need good old banks and institutional investors to get in on cryptos to see the value of cryptos increase. On their side, regulators realize more and more that there is no putting the crypto genie back in the bottle, the financial system will have to learn to coexist with cryptos.

The challenge for traditional banking will be to adapt to this new world, whose infrastructure and core principles are so completely different from what has ever been done in a pre-Blockchain era. To understand how the two ecosystems need to evolve to accommodate each other, it is necessary to first understand how each of them works.

You are your own bank, but…

The whole point of cryptos is that you do not need to trust a third party to hold your crypto assets. As long as you control your private keys, you are the only one able to initiate transactions and you do not face any counterparty risk, you are effectively your own bank. While this is great for individuals who want to reclaim their “monetary sovereignty” to quote Trace Mayer, this is not ideal when it comes to institutional investors.

Trusting institutional investors’ internal systems to safe-keep potentially billions of dollars in cryptos is a scary prospect. All it would take is one tech savvy employee to steal the cryptos. Remember that in the decentralized world of cryptocurrencies, transactions are final and immutable once recorded on the blockchain (unless the community decides to carry a hard fork, but let’s not get there). It is therefore not advisable that each institutional investor develop its own solution to hold the private keys of the cryptos it owns.

Enter custodians

In the past few months, while the market was dealing with the aftermath of the crypto frenzy of late 2017, solutions were quietly being built to allow institutional investors to finally get in. According to Mike Novogratz, founder of Galaxy Digital, 98% of the trading activity so far has been driven by retail investors. This is not how it was supposed to happen, at least not according to Wall Street. Retail investors usually come last to the party, after VCs, Wall Street and institutional investors. But this time institutional investors had no way of investing in cryptos. Legacy regulations all over the world usually require these investors to rely on custodians to safe keep their assets or to build in-house custodial solutions. This has been designed to protect investors against fraud by separating asset managers from asset custodians. This way, asset managers cannot lie on what is in their portfolios nor their valuations as third parties are actually holding their securities on their behalf. It also greatly simplifies trading activities as securities are being held by a few global custodians on behalf of millions clients. Instead of having millions of individual investors all over the world each owning stocks or bonds, a few giant custodians hold most of the global financial assets on behalf of millions of customers (Bank of New York Mellon has custody of $33 trillion of assets while JP Morgan has $28 trillion under custody).

Many companies have been making announcements at or after the Consensus conference. Ledger has developed technical solutions for custodians while Coinbase is launching a custodial service for example. Once these solutions are up and running and provided that institutional investors get approval from their investment committees to enter the crypto space, the market is likely to see large inflows of fiat currency. Having to rely on a few and most likely heavily regulated custodians will reduce the risk that smaller, less tech savvy institutional investors get targeted by hackers. At the same time, the larger the custodians, the more they will pose a systemic risk to the whole sector in the event of a massive theft of their cryptos…

Crypto exchanges having been wearing too many hats

Investing in the stock market has been made easier and easier in the past decades. What many investors may not realize is the mechanics that underpin the simple act of buying stocks. When one wants to invest in stocks, one simply opens a brokerage account, funds it with fiat currency and one can subsequently start buying and selling stocks. When a buy or sell order is initiated by an investor, the broker is going to route it through several exchanges in order to find the best execution price. Once the trade has been executed, it usually takes a few days to settle (yes, days…). Once the trade has been settled, the stock is effectively transferred to the brokerage account of the buyer. The trader may not even be aware of which exchange has been used to execute the trade. Whether NASDAQ, NYSE, IEX or any other exchange was used does not matter, the stocks bought are registered to the brokerage account of the trader. Investors do not need to have any account with any exchange, the brokerage firm is the one with accounts with the various exchanges. But this is not how it works in the crypto space, not at all.

In the crypto ecosystem, exchanges have been playing all three roles of brokerage firms, exchanges and custodians, a recipe for disaster. There are many reasons why financial markets evolved the way they did. Over the course of decades of financial crises, bankruptcies and frauds, regulations have been refined to protect investors. In the traditional finance world, exchanges do not hold any of the assets that are traded on their platform, all they do is provide an engine that matches buy orders with sell orders. But since exchanges are the gateway to cryptos, most people have assumed that they were no different from their brokerage accounts and that they benefited from the same level of protection as with a regular brokerage account, not understanding the concentration of risks underneath.

Centralized exchanges have been and will remain at the mercy of hacks because of the vast amounts of cryptos they control. It can never be said enough, if you leave your cryptos on an exchange, they are not really your cryptos. As long as an exchange is holding your cryptos on your behalf, you do not control them and you are at the mercy of hackers that are attempting to steal private keys from the exchange. Once you buy cryptos from an exchange, you should immediately withdraw them to your own wallet, this way only you control your private keys and you are shielded from hacks that may target exchanges.

“In the crypto ecosystem, exchanges have been playing all three roles of brokerage firms, exchanges and custodians.”

To solve this problem, a second generation of exchanges is emerging: decentralized exchanges such as IDEX or EtherDelta. These exchanges do not hold your cryptos on your behalf but simply provide the trading engine. Through smart contracts, traders can exchange cryptos without having to rely on a third party in the middle to hold their cryptos. This type of exchanges have become increasingly popular for ERC-20 tokens built on top of the Ethereum Blockchain.

The large number of crypto exchanges has also created a very fragmented market where price inconsistencies can be exploited by arbitrageurs. However, large arbitrage opportunities are unlikely to last for long as more and more brokers are entering the market with new trading platforms. These new solutions will enable institutional investors to execute large trades over multiple exchanges, which will enable them to optimize the price at which they buy or sell cryptos.

The blocks are falling in place

Over time, it is likely that the crypto ecosystem is going to look more and more like the traditional finance ecosystem with brokers and custodians, at least for institutional investors, which means that exchanges may go back to simply being matching engines instead of the one-stop-shops they are today.

Even though current prices are not reflective of the progress made in the whole crypto ecosystem over the past few months, the market is maturing fast and does not look anything like it did one year, two years or three years ago. Cryptos are on the radar of regulators all over the world, and it is a good thing because it is going to force the whole ecosystem to grow up from its current state of infancy. When and how this may end up being reflected in crypto prices is a much more difficult question to answer.

The views and interpretations in this article are those of the author and do not necessarily represent the views of Cointelegraph.com and the World Bank.

Vincent Launay is a finance specialist at the World Bank in Washington DC. He holds an MSc in Finance from HEC Paris and a CFA charter.

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Fortune: R3 Blockchain Consortium Is ‘Running out of Money’, Director Denies Rumors

While last year R3 had implied that the company had a larger goal of raising $200 mln in funding, R3 told Fortune that the figure came from a now-cancelled plan to sell a stake in a research subsidiary. The unnamed former R3 employees told Fortune that the consortium’s internal financial targets are “10X short” of their revenue, with the figure described as “laughably off.”

Charley Cooper, an R3 managing director, told Fortune that the company is not in danger of running out of revenue and will release an update on their finances at the end of the calendar year:

“We currently have more than sufficient funding and at this point have no plans to raise additional money.”

At the end of May, Forex settlement provider CLS invested $5 mln in R3 as part of a reported third round of R3 fundraising.

One unnamed former R3 employee told Fortune that one of the problems the consortium faced was a lack of developers for R3’s Corda blockchain:

“Although R3 will say 1,300 architects are contributing to Corda, if you look at the public release notes of R3, there will be no more than three people listed. The public version of Ethereum had 10,000 developers contributing.”

R3’s founding members had included banking giants JP Morgan and Goldman Sachs, but Goldman Sachs (and bank Santander) left the consortium in 2016. An unnamed Goldman Sachs source told Fortune that the bank left due to the unexpectedly large size of the consortium.

R3 recently partnered with enterprise startup Bloxian Technology, which is notable in that it is a step away from the business model of partnering with banks. R3’s turn to enterprise blockchain sales means that they are now competing with organizations like the Enterprise Ethereum Alliance, whose members include JP Morgan and Microsoft, as well as Hyperledger, according to Fortune.

R3 also filed a lawsuit against Ripple (XRP) last year, claiming that the latter had violated an agreement for R3 to purchase 5 bln XRP tokens for $0.0085 before the end of 2019. Ripple denies an obligation to pay, citing R3’s alleged failure to follow through on parts of the agreement. The case will be held in New York City, with the value of 5 bln XRP now equal to around $3.3 bln — which could represent a much-need cash infusion, Fortune reports.

R3 did not respond to Cointelegraph’s request for comment by press time.

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Public or Private? Blockchain Distinctions Are Falling Out of Fashion

“Convergence” may mean different things to different people in blockchain, but it’s a word that’s appearing more in more in public rhetoric of late.

For some, it simply means that innovations developed on a public blockchain powered by a cryptocurrency can be leveraged on a private blockchain used by enterprises, and vice versa. But to others, the rise of the term shows that the lines between these categories, once starkly drawn, are starting to fade.

As companies start to recognize the merits of public chains; as new technology enables different types of ledgers to communicate with each other; and as central banks consider issuing digital versions of their fiat currencies that could be used to settle trades in blockchain assets; nomenclature is evolving to fit the times.

“I would like to see in a year from now for most people to think it’s absurd to say ‘private networks’ or ‘public networks,'” John Wolpert, the former blockchain lead at IBM, said at Consensus 2018.

Back in 2015, the industry needed to diverge into public and private spheres, Wolpert said. But to him, it’s becoming clear that the industry is now heading the other way.

His own CV supports this idea, as he left IBM last fall to take up the new position of “seeker of awesomeness” at ethereum design studio ConsenSys. Indeed, seeing big names from world of enterprise blockchains jump over to join startups focused on the public domain is a telling sign.

In another example, former JP Morgan blockchain lead Amber Baldet’s new project, Clovyr, is all about building the middleware developer tooling and connectivity services to make convergence a reality.

There are plenty of rational reasons for people to use private networks, Baldet told CoinDesk, whether it’s for added privacy, control over corporate governance, or “a computationally expensive game to get performance and cost benefits.”

“As public networks gain value – it becomes where their customers are – connectivity will be an obvious evolution,” she said, adding:

“Pressuring businesses to move core operations to public chains is unnecessary; soon enough the lines between public and private will blur into a pragmatic and functional internet of value.”

Internet/intranet analogy

So, what does this mean in practice? Even in the highly regulated, cryptocurrency-averse world of banking, some seasoned technologists see a potential osmosis between public, open-access blockchains and private member-access networks somewhere on the horizon.

John Whelan, director of Banco Santander’s Blockchain Lab, drew on the internet-intranet analogy, often used by cryptocurrency proponents to argue private blockchains will one day dissolve to insignificance.

“I think we may see – although not guaranteed – some kind of convergence between private permissioned ledger networks,” said Whelan. “For private and permissioned [version], I would use the intranet analogy, and the public networks I would use as the internet analogy, with suitable bridging protocols, which are in development.”

However, Whelan said the important first part of the convergence story must take place within the banks themselves: a massive reduction in the number of ledgers, duplicated technology and reconciliation.

“The financial industry is moving from an architecture of many ledgers, to one of fewer ledgers. It’s that simple,” he said.

Others are more skeptical about the notion of public-private convergence at the network level, but still see the two spheres influencing each other.

“On the product level, I think we can expect to see continued cross-pollination of ideas and technologies between public and private blockchains, since there is a great deal of technical overlap between these two types of system,” said Gideon Greenspan, CEO of MultiChain, a startup that helps organizations build and deploy blockchains.

But the scalability, confidentiality and governance requirements are completely different for public and private chains, he added.

“I rarely, if ever, hear of a use case that could be sensibly implemented on either,” said Greenspan. “The closest I’ve seen is using a public chain to notarize a hash representing the state of a private chain, and this can make sense for extra security, but I don’t really think you can call it ‘convergence.'”

Feedback loop

Of course, such views aren’t stopping progress in the form of collaboration. The Enterprise Ethereum Alliance (EEA), formed in 2017 to develop standards for private forks of ethereum, has become one of the more visible convergence-seekers backed by major banks and businesses. 

The group recently released a long-awaited spec, plus details of how its architecture stack dovetails with the work of the Ethereum Foundation, the nonprofit that promotes the development of the public ethereum cryptocurrency. All this has occurred under the guidance of new EEA chief Ron Resnick.

The EEA sees a positive feedback loop between features developed for enterprises and the ethereum improvement proposals (EIPs) that are floated by developers for the public network.

“As more standards are established by the EEA, I’m sure more opportunities to base standards on EIPs and vice versa will start to emerge,” Conor Svensson, co-chair of the integration and tools working group at EEA, said. “I am optimistic we will see this starting to happen in 2018.”

Perhaps the most prominent example of this so far has been work that Amis Technologies did with its implementation of Istanbul Byzantine Fault Tolerance for the ethereum client Go Ethereum (Geth).

This ethereum improvement proposal (EIP-650) added a new consensus algorithm to Geth, one better suited to financial enterprises than existing proof-of-work or proof of authority. And it was then added to Quorum, the private blockchain platform developed by JP Morgan.

Svensson also pointed to identity as another area where public and private chain boundaries could theoretically be crossed, since identity on a blockchain is always protected by a private key.  

“As long as the private key remains secure, you have a notion of identity that can potentially be used on multiple chains (provided they use the same underlying cryptographic algorithms),” he said.

However, “whether you should use one identity across multiple chains is another question entirely,” he said.

Cash on ledger

Still, a prerequisite for full-fledged convergence of public and private chains would be the development of fiat cash on distributed ledgers, or so many seem to agree.

This would allow all sorts of digital assets and blockchain-based financial instruments to flow through the systems more easily since users would trust a government-backed currency more than a volatile cryptocurrency.

“Cash on the ledger is an essential if not the essential building block for commerce on ledger platforms,” said Clark Thompson, global solutions architecture lead at ConsenSys.

The ethereum-based app builder has a dedicated team of experts looking at all varieties of fiat cash on distributed ledgers, and it’s working with UnionBank of the Philippines to create a low-cost tokenized fiat solution for rural banking. In time, this could be extended to cover a larger network of banks and perhaps even the central bank, ConsenSys says.

Indeed, while fiat currency held in a traditional bank account can be represented as a token on a distributed ledger, this setup creates redemption risk, which might put off some investors. The ultimate digital cash, from enterprises’ point of view, would be a central bank-issued digital currency (CBDC).

“Central bank policy changes are necessary to permit central bank-issued tokenized fiat, which has the advantage that (like cash) it carries no counterparty risk,” said Thomson.

It’s anybody’s guess how long such a change would take, though, as central banks themselves are still tentatively exploring the concept.

But Whelan at Santander (a member of the Utility Settlement Coin consortium, which is attempting to make central bank money on distributed ledgers a reality) said he believes there could be a CBDC on a distributed ledger “within a few years.”

What remains to be seen is whether it is deployed directly by central banks, or uses a kind of two-step process where commercial banks essentially lend money into the system.

Whelan concluded:

“This is really a policy question for the central banks to examine. That’s not a technology question.”

Two-lane highway 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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JP Morgan Chase Implements a Cryptocurrency Strategy for The Bank

JP Morgan Chase, one of the most important banks around the world and in the United States, has decided to hire a fintech and crypto expert, known as Oliver Harris to take the role as head of crypto-assets strategy. The information has shocked some individuals in the crypto community that remembered what Jamie Dimon, CEO at JP Morgan, said about virtual currencies and Bitcoin.

JP Morgan New Crypto Strategy

The first to report Mr. Harris’ new job was Financial News, which explained that the main task of the expert will be to explore the potential of digital money at its corporate and investment bank.

The bank will be working so as to give an answer to the challenging new technologies in the financial world. Blockchain technology and virtual currencies are expanding in many different industries, and the banking sector does not want to lag behind.

Indeed, some months ago, banks like Bank of America admitted that it may be complicated to compete against these new financial services, platforms and products.

In an official report, Bank of America explained:

“In addition, the widespread adoption of new technologies, including internet services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adopt our existing products and services as we grow and develop our internet banking and mobile banking channel strategies in addition to remote connectivity solutions. We might not be successful in developing or introducing new products or services.”

These declarations show that banks will have to invest in blockchain and virtual currencies if they want to remain competitive and keep controlling an important part of the market. But the statement confirms the difficulties that the industry is now facing.

Daniel Pinto, former fixed-income trader and co-president of JP Morgan Chase, said during a conversation with CNBC that they were looking into the space of virtual currencies and blockchain technology.

“I have no doubt that in one way or another the technology will play a role,” Mr. Pinto said. But the he explained that regulations are going to kill bitcoin and cryptocurrencies in the long term, making people stop believing in it.

Jamie Dimon’s Comments

During the last year, Jamie Dimon has been commenting in a very negative way about cryptocurrencies and specifically Bitcoin. For example, Mr. Dimon said that Bitcoin ‘is a fraud’ and that it will eventually ‘blow up.’

But he made a clear distinction between virtual currencies and Bitcoin. He said that ‘the technology [blockchain] will be used to transport money. But it will not be Bitcoin, but US Dollars that will be transported.”

JP Morgan has developed a blockchain platform known as Quorum, which is being used by several institutions and companies for different purposes. With Oliver Harris, and a team of experts in blockchain and virtual currencies, the famous bank is trying to keep at the forefront of the cryptocurrency and blockchain developments. In order to do so, it will have to invest important sums of money in innovation and new technologies.

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Why JP Morgan’s Blockchain Patent Application Is Not That Surprising

JP Morgan’s filing for a patent based on DLT does not mean they are now Bitcoin supporters.

JP Morgan once again caused a bit of an upheaval within cryptocurrency circles last week – this time with the publication of their peer-to-peer (P2P) payments network patent application based on distributed ledger technology, like blockchain.

Some crypto enthusiasts branded the move as “hypocrisy to the extreme.” The criticism is not unfounded but perhaps not accurate. The bank, and to a greater extent, their outspoken CEO, Jamie Dimon, has been responsible for a lot of fear, uncertainty and doubt surrounding Bitcoin and cryptocurrencies as a whole.

“Bitcoin is a fraud”

The Jamie Dimon/JP Morgan saga of 2017 is still fresh in the minds of crypto enthusiasts. It all started with Dimon’s now-infamous words calling Bitcoin a “fraud” in September 2017. Shortly after that, in a somewhat confusing move, JP Morgan purchased a chunk of Bitcoin.

Even more confusing was the fact that less than a week later, Jamie Dimon lashed out against Bitcoin, stating that governments would soon ban it. In the same breath, he fired shots at the industry as a whole, saying cryptocurrencies are “worth nothing”. Less than a month later he called Bitcoin investors “stupid”, adding that they “will pay the price for it one day”.

However, JP Morgan’s strategies didn’t always seem to line up with the opinions of their CEO, as in Nov. 2017 the bank announced that they planned to trade Bitcoin futures on the Chicago Mercantile Exchange (CME). In December 2017, a strategist at the bank had gone so far as to say that regulated futures markets give Bitcoin legitimacy.

By January 2018, Jamie Dimon himself had done a complete 180 on his “Bitcoin-is-a-fraud” comments and said he regretted making it. All this happened within the space of four months and cemented JP Morgan’s perceived reputation – and Dimon’s personal reputation – as the ultimate Bitcoin and cryptocurrency “villain”. 

Criticism was never labeled against blockchain

While their skepticism surrounding Bitcoin and cryptocurrencies is clear, JP Morgan, and Jamie Dimon, never expressed any animosity towards blockchain’s legitimacy. In fact, JP Morgan is one of the underlying technology’s earliest supporters and testers.

As far back as 1999, the bank filed a patent for an alternative payments network. In 2016 they unveiled Juno and Quorum, two separate blockchain-based projects. JP Morgan is also one of over 300 members that make up the Enterprise Ethereum Alliance (EEA).

The bank has a strong record of support for blockchain itself and their latest patent application should come as no surprise. In fact, the bank first filed the patent – which aims to facilitate interbank payments using blockchain technology on October 30, 2017, a mere two weeks after Jamie Dimon labeled Bitcoin investors stupid.

The surprise might come later

The apparent surprise or hypocrisy stems from the fact that Bitcoin, blockchain and cryptocurrency are still being used as interchangeable concepts in mainstream media. This is not accurate, just as JP Morgan’s filing for a patent based on distributed ledger technology does not mean they are now staunch Bitcoin supporters.

However, the surprise might come later. Blockchain has moved on from just being the technology that underpins Bitcoin and has potential use cases other than just as a basis for cryptocurrency networks, including the tracking of vaccines in healthcare, secure remote voting during elections, incorruptible and accurate record keeping of official government documents, to name a few.

Saying that, JP Morgan is specifically applying for a patent on a “method for processing network payments using a distributed ledger”. This begs the question; can you have a P2P payments network based on blockchain without utilizing a digital token in some shape or form to process such payments?

Some community members don’t believe that you can, even arguing that the bank would be in direct competition with Ripple’s cross-border transfer platform:

“It’s not the competition part that is off… it’s the fact that they are describing the exact thing Ripple is currently pushing into the market. There is no way this patent goes through, and if it does, prior art will protect Ripple as they have this working already. It’s (as someone else stated) like filing a patent for an electric vehicle today.”

How does Ripple work?

Ripple connects banks around the world and enables them to offer real-time cross-border payment services to customers. Cross-border payments in the traditional sense require a number of intermediary companies to execute which means transactions can take up to four days to complete.

Ripple allows banks to sidestep these intermediaries with their transaction protocol, enabling them to execute transactions directly, and in doing so, cutting down costs and processing times. The transaction protocol includes a five-step process of payment initiation, pre-transaction validation, cryptographic hold of funds, settlement and confirmation.

HOW RIPPLE WORKS

Messaging systems are used to coordinate information exchange between the originating and beneficiary banks and an interledger protocol (ILP) ledger is used to coordinate the actual movement of funds. The goal is to speed up processing times, increase end-to-end visibility, increase transaction approval rates and ultimately lower transaction costs.

What are the similarities with JP Morgan’s proposed blockchain payment network?

The patent application describes a process of “Systems and methods for the application of distributed ledgers for network payments as financial exchange settlement and reconciliation.”

It goes on to claim, “In one embodiment, a method for processing network payments using a distributed ledger may include:

  1. a payment originator initiating a payment instruction to a payment beneficiary;
  2. a payment originator bank posting and committing the payment instruction to a distributed ledger on a P2P network;
  3. the payment beneficiary bank posting and committing the payment instruction to the distributed ledger on a P2P network; and
  4. the payment originator bank validating and processing the payment through a payment originator bank internal system and debiting an originator account.”

JP MORGAN BLOCKCHAIN PAYMENT NETWORK

JP Morgan’s proposed system therefore depicts a payment protocol with direct communication or messaging between beneficiary and originator banks, used in conjunction with a reconciliatory distributed ledger blockchain.

In essence, this is a very similar system and process to that used by Ripple, basically describing an interbank messaging and reconciliation protocol based on distributed ledger technology in order to eliminate expensive intermediaries, speed up transaction time and extend the global remittance reach.

It would also seem then, that if JP Morgan is indeed planning to develop the system described in the patent, they will have to implement it with a cryptocurrency at its core, the very thing they have been trying to discredit for the last few months.

The ultimate question then becomes whether it is possible to be a strong supporter of blockchain on one hand, but an equally strong opponent of the validity and legitimacy of cryptocurrencies on the other.

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JP Morgan Announces Prototype Blockchain Platform to Streamline Capital Markets Infrastructure

J.P. Morgan Chase & Co presented a prototype of its blockchain platform for capital markets, which aims to cut costs and enable smoother securities transactions. The announcement took place at NY’s Consensus conference Wednesday, the Wall Street Journal reported May 16.

Christine Moy, executive director of J.P. Morgan’s Blockchain Center of Excellence, told WSJ that blockchain “has the potential to be transformative” for the capital markets infrastructure.

She explained that capital markets – in which vast amounts of capital are transacted – involve multiple systems and information flows between many different stakeholders, “from issuers and asset managers to clearing houses and fund administrators.” “The promise of natively issuing financial instruments on blockchain is that you can share that infrastructure,” she said.  

Moy told the WSJ that a blockchain could offer a single, streamlined application, which each of the multiple entities could share and participate in. This could bring significant cost savings, she suggested, as well as overcoming issues of trust between parties.

J.P. Morgan – alongside Santander and other major banks and tech industry players – is part of the Enterprise Ethereum Alliance, a nonprofit that focuses on enabling interoperability between Ethereum blockchain applications, as well as improving their privacy, scalability, and security.

As Cointelegraph reported earlier this month, JPMorgan is working on blockchain integration to rehaul its payment, clearing and settlement systems, recently filing a patent for real-time p2p intra- and interbank transfers based on the technology.

Just yesterday, JPMorgan co-president Daniel Pinto confirmed that the bank is “looking into” the crypto space, saying he had “no doubt” the technology would “play a role” in the bank’s future. He suggested the “tokenization” of the traditional financial sector would, however, likely see new iterations, saying that, for him:

“Cryptocurrencies are real but not in the[ir] current form.”

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Ethereum as a Security, ICO Market Reopening in South Korea and Rat Poison: Hodler’s Digest, Apr 30-May 6

Top Stories this week

Ethereum—Security Or Not?

In what could be some earth shattering news for Ethereum – the world’s second largest cryptocurrency – US regulators will apparently be discussing whether or not it should be classified as security next week on May 7. If yes—it should have registered with the SEC back in 2014.

South Korea Considers Reopening ICO Market

Last year, South Korea banned any new Initial Coin Offerings (ICO) from being held in the country, but a new bill introduced by South Korean lawmakers could open the ICO market back up, albeit one now strictly supervised by government regulators. The passage of the bill could signal the start of a less FUD-y crypto stance coming from the country.

Goldman Sachs Opens Crypto Trading Desk

Investment banking giant Goldman Sachs will be opening a crypto trading desk after being “inundated” with requests from clients desperate to get their fingers in the crypto pie. This decision means that the company has officially decided that “Bitcoin is not a fraud.”

Four Car Manufacturing Giants Launch Joint Blockchain Initiative

BMW, GM, Ford, Renault, along with a total of thirty participants ranging from IBM to IOTA, have partnered to launch the Mobility Open Blockchain Initiative (MOBI) that aims to make transportation “safer, greener, and more affordable.”

Less Crypto Purchases With Mastercard Credit Card Lead To Drop In Quarterly Growth

Mastercard’s fourth quarter growth is down by two percentage points, a drop attributed to a decrease in credit card purchases of cryptocurrencies. Mastercard’s CEO hypothesizes that uncertainty in Asia could be the reason for the crypto spending contraction.

Best Quotes

“[Bitcoin] is probably rat poison squared,” — Warren Buffett, billionaire investor and CEO of Berkshire Hathaway  

“Someone else is trading turds and you decide I can’t be left out,” — Charlie Munger, Berkshire Hathaway VP

“All that it takes to make a credible idea into a fad is people just switch off their brains and stop thinking. Over 20 years in and around the banking industry — blockchain is a fad, but I have seen many fads in my career. If 10 percent of what I’ve heard in my career had come true, we would have these amazing banks that run for £1 a week,” — Martin Walker, director of the Center for Evidence-Based Management

“I would not describe myself as a true believer who wakes up thinking Bitcoin will take over the world,” — Rana Yared, Goldman Sachs executive working on opening their crypto desk

“All this talk of decentralization is just bulls**t […] You’re just making stuff up,” — economist Nouriel Roubini aka Dr. Doom, predictor of the 2008 financial crisis

Laws And Taxes

Crypto-Friendly Legislation In Belarus May Get KYC Update

A March decree in Belarus, designed to bring in crypto innovation to the country with the creation of a High Tech Park (HTP) meant to rival that of the US’s Silicon Valley, may be getting an update with some more stringent KYC requirements. Local sources says that companies that want to open a crypto exchange in Belarus’s HTP will be required to provide info on their management structure and customer data and communications, which must be stored for five years. This may not be the news that will attract those anonymity-loving crypto exchanges to the country.

Australian Financial Regulator Promises To Protect Its Citizens From Crypto

Down under in Australia, their Securities and Investments Commission (ASIC) has reported it will be “taking action” to protect consumers in the ICO space, meaning that all Australian ICOs need to confirm that they are not in fact misleading investors and engaging in unlicensed conduct, or face being halted by this government regulator.

Colorado Regulators Crack Down On Two ‘Unlawful’ ICOs

The Colorado Department of Regulatory Agencies announced that it is investigating two ICOs–a “LindaHealthCoin” for purchasing health insurance and a token advertised by Broad Investment as an equity token that represents shares in the company–due to a failure to provide info on the risks of crypto investments and ICOs. The two companies now need to prove why their tokens don’t fall under the Colorado Securities Act, or stop token sales.

Arizona’s Crypto Tax Bill Passes With Amendment

The Arizona House of Representatives has passed a bill that originally would have allowed its state’s citizens to pay their taxes with cryptocurrencies, but amendments to the bill mean that the Department of Revenue now just has to consider the possibility of alternative forms of payment.

Adoption

Blockchain Tech Reaches Governments, Scientists In The US, Banks In South Korea

Subcommittees of the US House of Representatives will be meeting next week for a hearing on how blockchain tech could help streamline supply chain management as well as prevent the production of counterfeit goods; a major science research marketplace has unveiled plans to track and validate research data on a blockchain platform; Berkeley’s city council has voted yes on a pilot program to sell municipal bonds with blockchain tech; and South Korea’s central bank is considering blockchain and crypto as possible ways to help it achieve a “cashless society.”

Australian Branch Of UNICEF Announces Crypto Mining Donation Program

UNICEF Australia has hopped on the crypto wave with the innovative idea of asking for donations via the borrowing of a user’s computer processing power to mine for crypto–almost 8,000 people have donated so far.

Iran Says Their Experimental Cryptocurrency Model Is Ready

Iran–a country whose central bank banned banks from dealing with crypto a mere two weeks ago–has announced that their “experimental model” of a domestic cryptocurrency is now ready. It’s as of yet unclear whether this digital currency will be made available to the public, and in that case, whether the majority-government owned Post Bank, or another financial entity would be the one to issue it.

JP Morgan Files Blockchain P2P Platform Patent

Banking giant JP Morgan Chase has filed a patent for a peer-to-peer payments network that would use distributed ledger technology like blockchain for both intra- and inter-bank settlements (sounding a bit like RippleNet to us). The P2P platform would use blockchain to process payments in real time, not relying on a trusted third party for holding the audit trail.

Mergers And Acquisitions

Dubai, IBM Partner For Blockchain Business Registry

Dubai, in yet another step in its 2020 Blockchain Strategy, has announced a partnership with IBM to launch a blockchain business registry. The partnership will be helped by Smart Dubai, the Dubai Silicon Oasis Authority, and Dubai’s Department of Economic Development.

Analysts Quit BlackRock To Form Blockchain Project VC Fund

As part of the seemingly endless exodus of Wall Street execs to the crypto sphere, three analysts at BlackRock have quit in order to found a $20 mln venture capital fund, Eterna Capital, which will focus on blockchain projects.

Goldman Sachs Exec Joins Maltese Crypto Fintech Startup

Yet another Goldman Sachs executive has joined a crypto startup, this time a Malta-based fintech platform for a financial marketplace allowing crypto investors to get instant cash against crypto collateral. Users will get a cash advance on their Mastercard or Visa credit cards without a bank-like credit check, and can then choose to sell their crypto whenever they feel the price is favorable.

Ethiopia Partners With Cardano For Blockchain Agriculture Tech

Ethiopia’s government signed a memorandum of understanding (MOU) with altcoin Cardano with the intent to begin using an agritech platform based on Cardano’s blockchain platform by the end of the year.

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Gainers and losers

The end of the week has seen the crypto market mostly in the green, with BTC and ETH back over their psychological price points of $9,000 and $700 respectively. Total market cap is at around $450 bln.

Top three altcoin gainers of the week:

  • All Sports (17.44%)
  • Elastos (9.21%)
  • DigixDAO (6.80%)

Top three altcoin losers of the week:

  • Maker (-16.95%)
  • Veritaseum (-14.74%)
  • Fusion (-14.63%)

For more info on crypto prices, make sure to read Cointelegraph’s market analysis.

FUD Of The Week

University College London Breaks Ties With IOTA Foundation

In more IOTA news–not a smear campaign, just reporting facts, please believe us, IOTA twitter trolls! — University College London has cut ties with the IOTA Foundation, citing that it is “inappropriate for security researchers to be subject to threats of legal action for disclosing their results.” UCL seems to be referencing the resurfaced allegations against some specific IOTA Foundation members of not responding too well an articles critiquing the cryptocurrency last fall.

Vertcoin’s Twitter Hacked, Scammers Advertise Fake BTC Giveaway

In another story of overeager Twitter users succumbing to too-good-to-be-true crypto giveaways, cryptocurrency Vertcoin’s Twitter was hacked this week, with the scammers promising a possible prize of 10 BTC if you participated by sending them 0.005 BTC first. Since not everyone can change their name like “Vitalik ‘Not giving away ETH’ Buterin,” it’s better for all Twitter users to assume every crypto giveaway is fake from here on out.

Director Of British Think Tank Compares Blockchain To Magic

The director of a British think tank, the Center for Evidence-Based Management, told Parliament that blockchain is “pixie dust” and “magic wands.” We have no response to this magical malarkey.

Bitcoin Cash Adversaries Cite Lack Of Cash, Cancel Lawsuit Plans

Bitcoin Cash opponents have dropped the idea of a lawsuit against Bitcoin.com, citing a lack of cash to get the suit started. Their beef with the site is that it allegedly blurs the distinction between Bitcoin Cash–a Bitcoin fork from August 2017–and Bitcoin, which they view as the “core” Bitcoin blockchain.

Prediction Of The Week

Reddit Founder Predicts 20x Price Increase For Ethereum

Reddit co-founder Alexis Ohanian said in an interview this week that Ethereum’s price will hit $15,000 this year, which would mean more than a 20 times price increase. Ohanian, who now works at a venture capital firm, also said that Bitcoin would hit $20,000 by the end of the year, a price point the coin already reached last December.

Best Features

Is EOS Worth The Hype?

As altcoin EOS’s price has risen this month by around 70 percent, and its market cap is now more than Litecoin and Cardano combined, two crypto thinkers have weighed in as to whether or not EOS is worth “the hype.” Managing editor at Crypto Chat Matt Leibowitz thinks it isn’t–EOS: Don’t Believe The Hype–while Daniel Jeffries takes radically diametric point of view, putting EOS on a pedestal as the Goddess of the Crypto Dawn.

Blockchain Could Be The Answer To The US Opioid Crisis

Intel and the pharmaceutical industry come up with an innovative way to combat America’s rising opioid crisis–blockchain tech.

How Cryptocurrencies Compare To Traditional Assets

Bloomberg put together a comprehensive 16 month analysis of just how cryptocurrencies shape up in comparison with traditional asset classes. The main takeaway? Crypto’s future is unknown (which we already knew) but the article is full of colorful graphs and charts that tell you why we can’t predict the future.

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JPMorgan Tests Its Quorum Blockchain Platform After Year Of Development

JPMorgan Chase, the National Bank of Canada, and other banking sector participants have tested the Quorum Blockchain platform with the intent to make the process of issuing financial instruments more efficient, Reuters reports Friday, April 20.

Other participants in the April 18 experiment were Goldman Sachs Asset Management, Pfizer Inc, Legg Mason Inc’s Western Asset, and other certificate of deposit investors.

Reuters writes that the test on Quorum, which JPMorgan has been developing since last year, “mirrored the Canadian bank’s $150 million offering on the same day of a one-year floating-rate Yankee certificate of deposit.”

David Furlong, the senior VP of artificial intelligence (AI), venture capital, and Blockchain at the National Bank of Canada, said that “Blockchain-related technologies have the potential to bring about major change in the financial services industry.”

In March, JPMorgan reported that they were considering making Quorum an independent entity as way to attract more partners that could be scared off if they are also competitors of JP Morgan.

Umar Farooq, JPMorgan’s head of Blockchain initiatives, told Reuters today that an excess of customer service requests is one reason to spin off Quorum. Farooq added that there has been interest shown by some unnamed financial institutions, and that in the meantime Quorum further develops by welcoming Blockchain savvy engineers from other JPMorgan divisions:

“We haven’t really seen a lot of really large scale things go into production yet. There are few cases where [B]lockchain can really shine.”

The Quorum platform runs on the Ethereum (ETH) Blockchain and is modeled after the Ethereum Go client. The platform is used by pharmaceutical companies Pfizer (who took part in the test) and Genentech as well as Microsoft Azure, among others.

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Enterprise Blockchain May Finally Be Ready for Its Breakout

It turns out, last year’s mantra “make blockchain real” was little more than wishful thinking.

Instead of the increased efficiency, enterprises have encountered impractically slow transaction volumes; instead of a transparent world with ultimate accountability, companies holding sensitive customer data faced regulatory concerns.

Still, there’s reason to believe the same rosy-colored forecast just might come true this year.

The reason for that optimism, it turns out, is that even if the blockchains didn’t become real for businesses in 2017, they did become tangible in terms of technology. And now that the software has been built, those working close to development say live trials are just around the corner.

“All these experiments and proofs-of-concept were not done in a vacuum and they were not done for fun,” said Charley Cooper, managing director of the R3 distributed ledger consortium, which has its own series of live applications in the final stages of launch.

He told CoinDesk:

“They were done to bear out what could and could not be done effectively on the technology, and what we felt would be meaningful commercial opportunities.”

In short, making blockchain real is no longer abstract, it’s on the verge of being good business.

1. The software is ready

But to understand how the abstract utopia of cryptocurrency becomes more than just a business interest, one needs to revisit a slew of successes that have flown under the radar.

Most recently, groups of financial institutions and enterprises (R3, the Linux-led Hyperledger consortium and the Enterprise Ethereum Alliance) have all seen major software milestones.

For example, computing hardware giant Intel last week launched Hyperledger Sawtooth 1.0 to the Hyperledger code repository. Created in partnership with more than 50 coders representing dozens of companies, the software joins the IBM-contributed Hyperledger Fabric and R3’s Corda as the latest blockchain solutions to release a version intended to give developers a sense of confidence.

Building on these solutions, versions of the open-source software platforms that can be monetized have also hit the market.

Last year, IBM launched IBM Blockchain, an enterprise-grade version of the software, and later this quarter, R3 will do the same with its own Corda platform, dubbed Enterprise Corda.

These commercialized versions of open-source software will, in turn, enable a number of industry-specific blockchain applications. Last year, Walmart, Kroger, and Nestle helped launch a food tracking network using IBM Blockchain, and new solutions are expected to be explored this year, according to a representative of the company.

In a similar way, R3’s Corda Enterprise is already in limited use with live applications from both Finastra and HQLAx. Both are expected to be available in the first half of 2018, according to Cooper.

Also, JPMorgan’s Quorum – which has been the most public solution associated with the Enterprise Ethereum Alliance – launched into version 2.0 last November, and for the strength of the team behind the software, it’s worth keeping an eye on.

2. Interoperability is moving forward

With the software laid down, it’s also a safe bet there will be advances on the idea that blockchains can and should connect in order to assuage businesses wary of investing in the wrong tech, or being worried about getting boxed out of future business opportunities.

As an early example, last August Monax integrated with Hyperledger Sawtooth to enable ethereum smart contracts on the platform, and a few months later Deloitte spin-off Nuco helped gather a group of companies specifically to address interoperability.

In a move that stands to accelerate similar integration, a version of Interledger, originally created by Ripple specifically to facilitate interoperability, has already been contributed to the Hyperledger consortium.

For an idea of what this could mean in a bigger context, last June, Interledger was successfully tested across seven different ledgers, including multiple blockchains.

The chairman of Hyperledger’s technical steering committee, and CTO of IBM’s open technology, Chris Ferris told CoinDesk interoperability would play a crucial role in 2018:

“Whether that’s Fabric and Sawtooth working with Burrow, or whether its Fabric and Sawtooth projects working with Indy, and collaborating on those various technologies, those are the kind of things we’re starting to see.”

While networks of companies remain at the center of where most people in blockchain think the technology is headed, a few leaders from both the legacy firms and startups will likely continue to chalk out their own territory.

3. Ripple and Swift will change the game

Also likely heightening business interest will be blockchain’s observable impact.

Indeed, one of the most notable trends this year could end up involving Swift, the inter-bank messaging platform that was early on identified as the ultimate middleman.

Last year, the member-owned network of banks and other financial institutions revealed a successful proof-of-concept aimed at reimagining the nostro-vostro accounts used by companies to store cash around the world, and in January, it signed an agreement with seven central securities depositories to evolve the way the centralized organizations might leverage blockchain.

But while this might look innovative in its own right, Swift’s moves are more interesting if you consider Ripple, the blockchain startup that in 2012 set out to disrupt it.

While Ripple was a scrappy Silicon Valley startup for years, it’s unique – and controversial – approach to offering public and private blockchain technology has transformed it into a juggernaut. At today’s XRP price of $0.84, the 61 billion XRP Ripple owns is worth about $51 billion, though much of that is locked up in smart contracts designed to restrict the company’s access.

It’s likely that Ripple’s executives won’t waste any time putting the funds they can access to work, as they’ve already shown they’re willing to spend money to make the case a distributed ledger solution can save clients money – even throwing conferences to prove it.

Will Ripple evolve to challenge Swift on messaging? Will it continue to emphasize its ability to provide better market liquidity? Or will it do both? It remains to be seen.

Time will tell, too, how Swift responds, but be sure that businesses are likely to take notice if the feud continues to attract global headlines.

4. Bank PoCs will evolve

Other financial institutions will likely look to see the competitive benefit in striking first.

Look for UBS to continue its own leadership role among a consortium of other banks, building on its plan to use a private version of the ethereum blockchain to speed along the newly implemented Mifid II regulatory requirements in Europe. The Swiss bank is also taking a leading role in Utility Settlement Coin (USC), which is exploring the potential benefits of blockchain for central banks.

Beyond financial applications, some of the largest companies in the world have spun off their own blockchain startups to help commercialize their work.

Traditionally described as one of the “Big Four” accounting firms, Deloitte has made a concerted effort to tranform itself into a technology consulting firm by helping its clients navigate the blockchain space. Importantly, it’s also begun to evolve the traditional understanding of what accounting itself looks like in the age of blockchain.

Also notable, global shipping-giant Maersk last year spun-off its blockchain supply chain work into a still-unnamed joint venture with IBM that is currently looking to provide streamlined services to other shipping companies. Electronics manufacturing giant Foxconn similarly spun-off a blockchain supply chain financing startup, in partnership with peer-to-peer lender, Dianrong.

As an example of an even more independent operation undertaken by a legacy firm, the maker of Mercedes-Benz last year issued a $100 million bond on a private version of the ethereum blockchain. This year, Daimler has confirmed it is continuing it’s blockchain work on a number of other – yet unspecified – blockchain projects.

“Our work on blockchain is ongoing,” said Hendrik Sackmann, a senior Daimler communications manager.

5. Cryptocurrency enters the mix

Another change on the horizon could be an increased willingness by enterprises to talk about – and even publicly explore – cryptocurrencies.

Most notably, among this group, is IBM, which last year revealed work with cryptocurrency startup Stellar and is now looking at ways to explore open blockchains in cross-border payments and last week revealed a test called Fabric Coin designed to demonstrate how the blockchain works.

Perhaps the most similar of these startups to the enterprises exploring blockchain via consortia is Multichain, which last year revealed a number of new partners in its own consortium, followed closely by the launch of its own open-source version 1.0 enterprise software.

Unlike enterprise consortia, while Multichain does not require the use of a cryptocurrency, it is designed to easily integrate with the bitcoin blockchain.

Leading the way with another cryptocurrency, is ConsenSys, a collection of startups that are working both independently and with enterprises to leverage both private and permissioned versions of the ethereum blockchain and its accompanying cryptocurrency ether.

Hidden among this rapidly maturing blockchain startup community are also a number of sleeper startups that could be up similar game-changing projects.

The most notable of these sleeper startups are Tradewinds, the blockchain spin-off behind the IEX exchange made famous in Michael Lewis’s “Flash Boys,” which is expected to emerge later this year with some big news, and two startups from within R3: Post Oak Labs, a fintech consultancy with blockchain roots and DrumG, building products for clients using Corda.

What each of the blockchain startups catering to enterprises have in common, according to Hu Liang, founder of another leader in the space, venture-backed blockchain operating system, Omniex, is some rather unusual positioning, from a historical perspective.

Unlike most financial innovations, which are led by commercial consumers, blockchain started the other way around, leaving enterprises to catch up.

Liang, who previously worked at bank and asset managing giant, State Street, told CoinDesk:

“Crypto is the only asset class in history that was initially driven by the retail community. Because of the run-up in that price it obviously has brought up the interest of institutional investors.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Ripple.

Sledge hammer image via Shutterstock

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