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Blockchain Finance

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Talk given at Coinscrum "TOOLS FOR THE FUTURE #2", 9 March 2015, London.

Published in: Economy & Finance
  • It looks like that the presentation tries to estort the facts about bitcoin. Slide 12 is extremely wrong to me. "Legally" == Human which is source of evil.
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Blockchain Finance

  1. 1. Blockchain Finance Robert Sams March 2015
  2. 2. The Big Idea If we can transfer digital currency on a blockchain, why not transfer stocks, bonds and other assets on a blockchain? Thesis: if it works for on-chain assets, it can work for off-chain assets.
  3. 3. What are the bankers saying? Oliver Bussmann, CIO of UBS I believe–and this is my personal view–that blockchain technology will not only change the way we do payments but it will change the whole trading and settlement topic. Bank of England, Quarterly Bulletin In a similar way, the potential impact of the distributed ledger may be much broader than on payment systems alone. The majority of financial assets–such as loans, bonds, stocks and derivatives–now exist only in electronic form, meaning that the financial system itself is already simply a set of digital records. These records are currently held in a tiered structure. . . but it may be possible in the future–in theory, at least–for the existing infrastructure of the financial system to be gradually replaced by a variety of distributed systems.
  4. 4. Let’s replace this. . . Source: Richard Gendal Brown http://gendal.me
  5. 5. . . . with this! Issuer Investor A Investor B . . . No intermediaries! P2P finance!
  6. 6. The 3 Sins of a Centralised Ledger Sin of Commission forgery of transaction Sin of Omission censorship of transaction Sin of Deletion reversal of transaction My thesis You cannot eliminate all three. You must choose to minimise either censorship or reversal, but not both.
  7. 7. The 3 Sins of a Centralised Ledger Sin of Commission forgery of transaction Sin of Omission censorship of transaction Sin of Deletion reversal of transaction My thesis You cannot eliminate all three. You must choose to minimise either censorship or reversal, but not both.
  8. 8. Code-as-Property-Law? Nick Szabo Fiduciary code will often execute some of the functions traditionally thought of as the role of commercial law or security, but with software that securely and reliably spans the globe regardless of traditional jurisdiction. Thus: Property titles (registered assets), where the on-chain registry is either the legally official registry for off-chain assets or controls on-chain ones, thus providing reliable and secure custody of them. Wrong! Not if the blockchain is based on permissionless validation. Much of "Blockchain Finance" is really a political programme to bring back bearer assets in cryptographic form.
  9. 9. Code-as-Property-Law? Nick Szabo Fiduciary code will often execute some of the functions traditionally thought of as the role of commercial law or security, but with software that securely and reliably spans the globe regardless of traditional jurisdiction. Thus: Property titles (registered assets), where the on-chain registry is either the legally official registry for off-chain assets or controls on-chain ones, thus providing reliable and secure custody of them. Wrong! Not if the blockchain is based on permissionless validation. Much of "Blockchain Finance" is really a political programme to bring back bearer assets in cryptographic form.
  10. 10. Take your pick Permissionless blockchain (e.g. Bitcoin) censorship resistant reversals possible only suitable for on-chain assets Permissioned blockchain (e.g. Distributed Ledger) legally accountable validators no reversals – settlement finality suitable for off-chain assets like securities, fiat currency, . . .
  11. 11. Take your pick Permissionless blockchain (e.g. Bitcoin) censorship resistant reversals possible only suitable for on-chain assets Permissioned blockchain (e.g. Distributed Ledger) legally accountable validators no reversals – settlement finality suitable for off-chain assets like securities, fiat currency, . . .
  12. 12. Take your pick Permissionless blockchain (e.g. Bitcoin) censorship resistant reversals possible only suitable for on-chain assets Permissioned blockchain (e.g. Distributed Ledger) legally accountable validators no reversals – settlement finality suitable for off-chain assets like securities, fiat currency, . . .
  13. 13. What Really Works Distributed Ledger Blockchain (Permissioned) Distributed Virtual Machine (Turing-complete) Smart contracts govern off-chain assets Network achieves settlement finality
  14. 14. What Really Works Distributed Ledger Blockchain (Permissioned) Distributed Virtual Machine (Turing-complete) Smart contracts govern off-chain assets Network achieves settlement finality
  15. 15. What Really Works Distributed Ledger Blockchain (Permissioned) Distributed Virtual Machine (Turing-complete) Smart contracts govern off-chain assets Network achieves settlement finality
  16. 16. What Really Works Distributed Ledger Blockchain (Permissioned) Distributed Virtual Machine (Turing-complete) Smart contracts govern off-chain assets Network achieves settlement finality
  17. 17. What Really Works Distributed Ledger Blockchain (Permissioned) Distributed Virtual Machine (Turing-complete) Smart contracts govern off-chain assets Network achieves settlement finality
  18. 18. Implication: Eliminate the Clearing House Smart contracts replace intermediation between buyer and seller. Simultaneous exchange of assets peer-to-peer Payment-versus-Payment (FX) Delivery-versus-Payment (Securities Settlement)
  19. 19. Implication: Eliminate the Clearing House Smart contracts replace intermediation between buyer and seller. Simultaneous exchange of assets peer-to-peer Payment-versus-Payment (FX) Delivery-versus-Payment (Securities Settlement)
  20. 20. Implication: Eliminate the Clearing House Smart contracts replace intermediation between buyer and seller. Simultaneous exchange of assets peer-to-peer Payment-versus-Payment (FX) Delivery-versus-Payment (Securities Settlement)
  21. 21. Implication: Eliminate the Clearing House Smart contracts replace intermediation between buyer and seller. Simultaneous exchange of assets peer-to-peer Payment-versus-Payment (FX) Delivery-versus-Payment (Securities Settlement)
  22. 22. Implication: Eliminate ISDA Derivatives Smart contracts replace ISDA Master Agreement. Independent valuation High-frequency variation margining Enforcement by collateral rather than law (legal recourse)
  23. 23. Implication: Eliminate ISDA Derivatives Smart contracts replace ISDA Master Agreement. Independent valuation High-frequency variation margining Enforcement by collateral rather than law (legal recourse)
  24. 24. Implication: Eliminate ISDA Derivatives Smart contracts replace ISDA Master Agreement. Independent valuation High-frequency variation margining Enforcement by collateral rather than law (legal recourse)
  25. 25. Implication: Eliminate ISDA Derivatives Smart contracts replace ISDA Master Agreement. Independent valuation High-frequency variation margining Enforcement by collateral rather than law (legal recourse)
  26. 26. Which Moral Imperative? Choose the right technology for the objective. Censorship resistant finance → Permissionless blockchain Reform financial markets → Permissioned blockchain
  27. 27. Follow me Robert Sams Twitter: @codedlogic, @clearmatics

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