During a week of back-to-back and overlapping fintech events around the capital, a common theme emerged – recognition of the hype surrounding blockchain.
Monday saw a degree of fanfare as Barclays Smart Contract Templates starred in the first public demo of R3's Corda platform at a stadium setting. Wednesday (20<sup>th April) had the likes of DAH's Blythe Masters, Ethereum's Vitalik Buterin and R3's Richard Brown roll up their sleeves and talk about the reality of this technology.
Starting with the SWIFT Business Forum 2016 at Tobacco Dock, Blythe Masters, CEO, Digital Asset Holdings, described a challenging, less-leveraged, post financial crisis environment where capital requirements have gone up unabated. Into that environment an entrenched financial services sector has come under attack from a new generation of technology and entrepreneurs.
She said the reason for the intensity of the focus on blockchain technology is because of the intensity of the need, and the significance of the opportunity. "I think the incentives and the catalysts for that change exist now. And that's why you are seeing so much noise around this space. I often get asked the question: is this really just hype or is there something there. The answer is there is plenty of hype and there's also something there.
"One of the first times in history it's possible to think about mutualising and sharing financial infrastructure in a way that its security is enhanced, relative to the status quo. Blockchain or distributed ledger technology is all about the ability to share and mutualise common infrastructure, rather than keeping separate renditions of proprietary infrastructure and then wasting billions reconciling the inevitable resulting differences.
"To mutualise and share financial infrastructure is the opportunity to eliminate extremely significant components of the post-trade financial manufacturing cost base, if you will. In an environment with compressed ROEs, that's a really interesting proposition. We are not talking about 5% or 10% out of any given cost base, that one would expect to do in a year. We are talking about the opportunity to cut 30%, 40%, 50% out of cost bases."
After coffee, a technology panel called "Blockchain – Beyond the Hype" was composed of Ethereum creator and lead researcher Vitalik Buterin, Matthew Hampson, CTO, Nomura, and Simon Taylor, VP Entrepreneurial Partnerships, Barclays.
Taylor kicked things off stating that 2015 had been the year of blockchain hype and that the "Trust Machine" cover of the Economist may well have been its high point. "We are now looking realistically at where revenues will be coming from," he said.
Clearly Nomura's Hampson was going to be the blockchain Victor Meldrew of the panel. He said: "When that Economist article came out my email inbox filled up continuously for the entire day. Following that there was a rage of discussions all the way up to the board level. Relatively conservative companies now have an interest in what's this blockchain and ledger thing all about. I see a lot of talking shops but I've not seen anything with a value proposition round it."
Buterin pointed out that the interest in consortium chains and private networks didn't really exist at all two and half years ago, whereas now these are front and centre of the discussion. He said: "People are starting to take problems like scalability and privacy seriously and that's something that can be approached a few different ways depending on the use case you have.
"Privacy, for example, is very use case dependent because you have privacy of the content - what is the content - privacy of the metadata, and as we know from all of the various different revelations of the last five years, metadata is very often the attack vector and so you have to be concerned about that. Are we talking about currency transactions, are we talking about the content of financial agreements, are we talking about identity information.
"From a scalability perspective, the challenges are kind of different if you are on a public chain, versus if you are on a consortium network, versus if you are on something that borrows some aspects from blockchain technology but actually is some kind of cryptographically-authenticated centralised data publishing solution.
"People are starting to think about all of those and I think to some degree the field is widening; people are really digging in more widely and deeply into figuring out what use cases are going to be.
"Another change is that, up until the end of 2013 the technology was basically funded by the Bitcoin price going up and people getting rich. Now Bitcoin price has gone down; there are a lot of companies that literally had the Bitcoin price going up as part of their VC hedge, and then we discovered, 'hey guys, you'll have to have an actual business model', and so that has started some serious discussions in the last couple of years."
Taylor concluded that what we seeing in blockchain is "revolution in reconciliation, not a revolution in payments and settlement". He added: "Solving digital identity doesn't go away and it's the big white elephant in the room."
Hampson said: "I don't like these 'labs' that people keep hidden in the corner of the room. All you see is proof of concepts."
One DLR stop across in the City, Consult Hyperion was into its nineteenth annual Tomorrow's Transactions event. An equally venerable blockchain line-up featuring R3, Ripple and Intel had been organised by Dave Birch, who is way too optimistic about blockchain to act as Victor Meldrew in this case. But he'd brought in Dr Michael Salmony, executive advisor at payment firm Equens to play the part, with a presentation entitled, "Blockchain for Payments – Modern Alchemy?"
Salmony began by saying blockchain is a solution looking for a problem. "Is that a smart way to go? Shouldn't you start with a customer, with a business problem, and go that way? I've never met a customer with a distributer ledger problem."
Salmony, who holds a PhD in computer science and has a special interest in distributed systems, pointed out that solving the double spend problem, along with mitigating Byzantine fault tolerance, was done decades ago. "You hear people saying that now we can do distributed systems – it's as if the entire internet had been on a server in California."
He went on to say that payments comprise a lot more than moving numbers, such as KYC and compliance, and to assume this can simply be replaced with an algorithm is naive. He also said bankers are especially susceptible to herd mentality, showing a slide of lemmings running off a cliff.
"We can improve things without blockchain; it's a matter of will. One good thing to come out of this is that we might reappraise infrastructure and make our systems more distributed. And focus on real problems like cyber-crime and identity."
It was only a couple of weeks ago that R3 unveiled its Corda platform for shared ledgers. CTO Richard Brown said he had been shut in a room working on the project for the past year, and it was nice to finally be allowed out. This was the first time he had presented publicly on the consortium's developments.
He said: "The key piece of work was to get to the essence of what, if anything, is unique and different or novel about this phase; what is the thing that we can do now, or that we have learnt that is possible now, that pre-Bitcoin, pre-blockchain, we couldn't do.
"The conclusion I came to is perhaps not a particularly profound point, but it's really quite powerful. If you look at Bitcoin or Ethereum or any of these blockchain systems, they allow me to know if some set of data that's in front of me is the same as other relevant people across the network see. I know that's what they see and I know they know that that's what I see."
Brown said you can think of Corda at a high level as a blockchain platform, but which makes menu selections. "It has a strong focus on interlock between the business logic in code and the data in code and the legal prose. So that in the event of dispute we know what dominates and we know how to resolve it. There's a focus on interoperability. Private by design - it is not appropriate for me to reveal the private details of my client's transactions to some other bank. And we do believe strongly that it's not sufficient just to record the data, we actually have to share execution of business logic."
Fielding questions from the floor, Brown said: "In any of the potential uses of this technology that involve assets and therefore asset settlements, there's a debate about where is the cash - whether it's commercial bank money or central bank money, and in either case, is it on ledger or off ledger. I don't have a view on the answer to this, but central bank money on the same ledger as the assets, clearly makes certain aspects of the architecture considerably simpler."
The week's London blockchain marathon jogs on to Friday with Quantech in Canary Wharf, which will also feature Vitalik Buterin, as well as Clearmatics CEO Robert Sams.
Apparently, in the US, you can attend a blockchain conference every day of the week, every week of the year. To some extent the hype beneficiaries are the conference organisers, aided and abetted by over-zealous journalists who religiously write it all up.