Why distributed ledgers
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Presentation to the Financial Services Club by Simon Taylor, Barclays, 12th November 2015
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Why distributed ledgers
- 1. 1 | Blockchain Overview Open – Do not distribute without attribution The “Blockchain” / Shared Ledger Landscape Public Developments • CBA now using Ripple for Intra Bank transfers • UBS Blockchain lab getting significant pick-up • Citi completed 12x Experiments 6x investments and announced “Citi Coin” • Santander announced 25 use cases for blockchain technology • Wells Fargo and JP Morgan created their own “digital currency” (JP filed a patent) • DLG announces 30 Banks join a global consortium for Interbank ledgers This year VCs will pump nearly $1Bn into technologies designed to disrupt the Financial Services Ecosystem More in real terms than the internet received in 1996 The key to extracting opportunity is understanding the *real* commercial problems
- 2. Cycle 1 of VC Investment in Bitcoin was predicated on answering the wrong question
- 3. Why Distributed Ledgers? Who are you and what do you want to achieve? • Forks law – anything that requires censorship resistance will gravitate towards censorship resistant systems • Sams law – anything that does need censorship resistance will gravitate towards non censorship resistant systems
- 4. What Problem Really Needs Solving? Cost, Transparency, Reconciliation. Or simply destroying the capitalists? • Banks spend near Google levels of $ on IT without as much productivity • Banks are facing ever more reporting, and compliance legislation and regulation • Each new regulation increases costs • Some processes are stuck in the past Composite Average Tier 1 Bank IT Spending* $3Bn pa Wallet / Disruptor IT Spending ~$1Mpa
- 5. Reconciliation Through Cryptography • Today reconciliation happens through messaging and over night batch processes (Nostro / Vostro). DLs settle between counterparties as “self clearing” networks • In DLs Maths performs the reconciliation between counterparties making reconciliation faster, near real time and the data more transparent Today Tomorrow Reconciliation through paper, many databases 2 – 5 day settlement of transactions Reconciliation through cryptography “mining” 2 – 5 second settlement of transactions Today Tomorrow Credit Richard Brown for the Diagram
- 6. Why Distributed Ledgers? 1.Reconciliation through Cryptography 2.Highly replicable (viewable) 3.Granular Permissioning 4.Granular Privacy / Opacity
- 7. Three Examples of Problems being Solved • Blood Diamonds • Proof of Ownership • Operational Risk in Trade Finance • Proof of Signature / Execution of Contract • Sharing Economy in Capex Purchasing • Proof of Performance
- 8. Where do we go from here? 1.Open source and collaborative is key 2.Solving the big challenges will take time 3.The value is in the gaps between organisations 4.How should the banks react?
Editor's Notes
- JP Morgan: http://appft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=%2Fnetahtml%2FPTO%2Fsearch-bool.html&r=1&f=G&l=50&co1=AND&d=PG01&s1=20130317984&OS=20130317984&RS=20130317984
- The thesis of silicon valley is that bankers are stupid, and basic solutions are what’s required.
- * Based on the top 20 banks globally averaged
- This is tough to make backwardly compatible in developed markets, but could be a new model for market entry / settlement without local clearing