I can't say I'm all that surprised. R3 serves as both an R&D lab and a place to connect vendors and potential clients. Moreover, the focus is on private/permissioned blockchain tech. The tech in this space is still quite immature overall and pretty much everyone has had a hard time building actual blockchain infrastructure vs things that are sorta like a blockchain. If you can't show clients value for their membership in R3 (because the tech's not there) then what's the value of staying a member (especially if you've seen all the vendors in their portfolio already) vs rejoining when things change? This isn't R3's fault of course, as I think the tech in this space is just getting started and they're in a great place to help it along; members will come and go.
I spent a year investigating blockchain applications for JPM so I've seen most of the permissioned blockchain solutions that are out there. Unfortunately, none of the solutions I saw were real blockchains. The more technical groups in banks (which GS has) surely realize this as well. The solutions I've seen consistently lack at least one of the following necessary features:
- Fast, Deterministic BFT Consensus (mining doesn't work as intended in private contexts[1])
- Smart Contracts (you need a deterministic language)
- Signed Transactions (TLS based authentication trades security & audibility for speed)
- Cryptographic data structure for transaction storage
There are other features you need, but these are the big distinguishers I noticed. While technically you don't even need smart contracts or fast BFT consensus, I believe the tech isn't useful enough to justify the migration costs without them.
Disclaimer: I'm a founder in the private blockchain space[2] and founded specifically to make an infrastructure that addresses these issues.
I would be curious to understand what problems these blockchains solve. Intuitively, they do not seem like obvious candidates for financial transactions.
1. They really shine in a p2p architecture where no party trusts each other. But that's not how the financial system works. Banks trust central banks, exchanges and clearing houses, and it is very much a club where players have to be vetted and monitored by a regulator, quite far from the open and wild nature of p2p systems.
2. Market participants need anonymity. Morgan Stanley might not know who hides behind the cryptographic key xxxxx until they do a trade with Goldman Sachs, see that trade appearing in the public ledger and then suddenly they see every single transaction Goldman has done since the dawn of times. Markets need anonymity otherwise market participants can arbitrage you based on what they know you need or plan to do. And the transparency of the public ledger is a fundamental problem.
3. Regulators need transparency. The regulators will need a centralised place where they can put a name against every transaction. That I would thought almost defeats the purpose of the ledger since a traditional transaction log will have to be maintained on the side. Now you have two ledgers.
I remember this excellent blog article explaining when blockchains are pointless and unless I missed something, financial transactions do not meet conditions 3 (Absence of Trust), 4 (Disintermediation).
I'd say there are a few ways to think about blockchain's utility in private contexts (public chains are pretty different because of their ability to allow for anonymous participation). The two best ones are the intra- and inter-organization use cases.
For intra-organization, one way to view private blockchains is to look back to the days of mainframes and the shift to databases. While you technically never need a DB and can get things done with code, DB's are incredibly useful as a general utility because of the baseline features you get by using one. Private blockchains are similar, in that they give you some new features (e.g. sharable DBs) and are much easier to build with as they raise the baseline on how bad a solution can be that is built with them.
While you can have a pretty messed up DB schema, bespoke mainframe solutions can be much worse. Private blockchains are like that (especially when they have smart contracts) -- sure you can really mess up the systems setup but issues that DB's can have like high availability and disaster recovery are 100% commoditized. Also, they demand a higher bar for authorization making them generally as more robust the most hardened DB by default.
That isn't to say that a private blockchain will replace the DB as blockchains can be wild overkill for many domains. A small company that needs a DB doesn't need a blockchain's feature set, but a large company that needs a globally distributed DB for holding a ledger (of anything) would be well served by one. When you're working with a system that by default is BFT, incredibly paranoid about authorization, perfectly replicated and highly available then build a solution gets much easier.
As for the specific problem that they solve, it's the settlement problem: organizations currently hold internal ledgers of truth about what they own but they can't inherently trust other organizations' ledgers of truth about what they own, so we need 3rd parties to settle cross-ledger. Currently, institutions handle this role but private blockchains represent an algorithmic solution.
> I would be curious to understand what problems these blockchains solve.
Buzzword compliance. I predict you will see "Blockchain" products that contain transactions in a Merkle tree as the only technological link to actual blockchains. (R3 have one already, R3 Corda.)
Kadena seems like a solid team, kudos for their work.
Smart contracts require you to work in a completely new language and toolset.
You don't need smart contracts to create a blockchain application, if you use the right libraries (e.g. go-merkle) and write your application to be deterministic. See Basecoin in the page below:
If you want a deterministic smart contract language, you're better off avoiding the EVM, or worse, Solidity.
Tezos (plug, plug, I'm the lead on the project) has a VM with a full formal specification, and even a rudimentary embedding in Coq. It's statically typed and purely functional.
My thinking for v2 is to use Honey Badger BFT, with multi party computation for bonding / unbonding
Overall I agree with Tendermint (and contra Casper or DFinity) that it's better to just drop availability and to have a less subjective security model. It sucks to get stuck if the validator set becomes compromised, but it's not the end of the world.
Whats the benefit of HB over Tendermint? There's a good reason we don't use threshold signatures... to guarantee accountability. We could add threshold signatures on top of Tendermint, but for most use cases this isn't very helpful (yet).
In any case, building on TMSP will make Texas future proof to any consensus engine that favors safety. Let's discuss.
Yes, getting accountability needs to be addressed, we're looking at several ways. Makes no sense to build on TMSP, governance that introspects over the consensus mechanism is a key feature. We aspire to be a utility, not a vassal.
Smart contracts definitely have a tradeoff between new toolset/languages vs infrastructure level features. With smart contracts, anyone can write code for the chain vs the "write your application to be deterministic" approach where new code needs to be at a minimum vetted by some central org/group, though they're usually written by the vendor/provider/etc. Each has its strengths/use-cases. For inter-org I prefer the smart contract approach vs the intra-org can see the benefit of using regular code -- it's not like you're worried about malicious code in the intra-org case. I do think that smart contracts increase the utility overall (sorta like having SQL for a DB > not) and improve its reliability (accidentally non-deterministic code can be a bit worrying).
As for Tendermint BFT, it's one of the few that somehow I never got to dig into at JPM. Do you know if Tendermint BFT's performance & performance-vs-scale numbers are published? These are notoriously hard to come by and I'm always curious for more data-points on the matter.
Does anyone have a good solution for bugfixing and updating defective smart contracts yet, other than "fork the entire blockchain" Ethereum DAO passim?
If they are to be immutable then you're going to have to code to NASA standards.
Pact[1], the language we've built, has the idea of an `admin keyset` that enables admins with the right number of signatures from the right number of keys to migrate contracts. Our approach is rather different from the EVM's as smart contracts interact with/guard a table in a DB (think stored procedures accessing a table) and the system has modules.
This way, if a bug is found, the admin can update the smart contract module guarding the DB table directly vs having to track down the on-chain contracts for migration (if it's even possible). From a normal user's pov, they don't see a difference (unless the admin decides to change the namespace or something).
It's a subtle but important difference. When someone using Pact sends the transaction `(payments.transfer "me" "you" <amt>)` the transaction (after doing a bunch of auth with ppk-sigs) looks up the `payments.transfer` command from the on-chain smart contract and executes it with the provided args. As such, the admin can update buggy contracts without issue (and roll-back, fix tables that have bad data).
You can implement a function that migrates all of the contract's assets and data to the new version. Obviously, you need to be careful about who can call this function, maybe requiring the agreement of all (or at least a majority) of stakeholders. Also, there is a risk of hitting the gas limit, preventing you from executing a "heavy" migration.
Maybe, our system gets 8k-12k transactions per second with full replication + crypto up to a few thousand consensus nodes (slows down around 4k nodes). That type of performance opens up a lot of potential applications.
As for "a horseless carriage with a horse" perhaps, we'll see. These systems do give you something that you can't get otherwise which is a distributed DB that you can share with competitors without worrying about them stealing from you/breaking it. Blockchain is to overloaded right now, but it's the name that has stuck likely because "a Byzantine-Fault-Tolerant Consensus database" (BFTCDB) is just too impenetrable. If one of these BFTCDB take off, if may not actually be a blockchain (though I suspect it will be because cryptographic data structures are just too useful for them) but I bet it will be called one.
But that the end of the day, that's what a permissioned blockchain is -- a DB you can share, which is a seriously new capability.
I think that there is no way to compete against the speed and relative non-complexity you can get from "closed group, trusted 3rd party" solutions.
There is so much hype and confusion spread around the issue - as there are some genuine threats to some of the bread-and-butter services the banks do, like accounts and payments.
But to put it mildly, the bank executives are for the most time not really in the right career to sort out what's what, and due to the way the banks work, they are not likely to listen to the people that actually know how to do that until a lot of money is wasted and very little has been gained.
Financial companies and banks already trust each other. It doesn't make sense for them to be held under public scrutiny with a public ledger. Therefore, blockchain is a solution without a problem for financial institutions. Their needs are already well met and there's little incentive to change. It worked for a 1000+ years why uproot everything for a buzzword ? Of course they aren't going to change.
These were the meeting places in which the maritime insurance deals were made at a time of increasing maritime exploration by the British. These also evolved to be the places such materials were bought and sold - and in fact the trading pits were (and in some cases are) based on these gathering locations.
It's interesting to visit the London Metal Exchange which although computerised has the trader pit (complete with circular sofa) in which trades are still conducted between traders.
In an interesting turn of fate the very docks that the traders made possible subsequently collapsed with the introduction of container shipping and ships which were too large to navigate the Thames, and pushed shipping ports to the periphery of the country. In an ironic twist of fate these docks then became the Docklands and home to London's financial district.
Right up until Brexit, when the financial centre was destroyed by petty minded little England, ending four hundred years of global outlook for the sake of believing in lies.
If we do end up picking a path to brexit that fucks over the London financial sector, in hindsight his comment will probably look like merely an impassioned statement of fact.
I'm moderately hopeful than we won't, but, well, 2016 has been 2016 and I have a horrible feeling 2017 is going to go "Hey, 2016, hold my beer and watch this!"
I'm not sure accurate this is. Paper money and the first stock exchange came from Amsterdam. A lot of the words, like Bank (board where the money was counted, breaking the bank meant breaking the board), nostro Account, vostro Account came from Latin/Italian.
> Their needs are already well met and there's little incentive to change.
This is definitely not true. It takes some financial assets 3-5 days to settle after the initial transaction goes through, weaving its way through many database systems (some many decades old) and middlemen who each take a cut, e.g. clearing houses. Any established industry has lots of cruft that builds up.
For this reason Santander estimates that banks can save $15-20bn per year collectively by using blockchain technologies to make their infrastructure more efficient[1][2]
That 1-5 days to settle isn't due to slow and disconnected systems though, which is what many looking from a tech perspective believe. Most financial transactions are matched in settlement systems the same day they are traded. The 3-5 days is for prefunding of underlying accounts, tear ups and other asset class idiosyncratic reasons.
I agree that the current systems are very far from optimised. But what benefit does the blockchain per se give them, given they already trust all participants? It only seems to introduce unnecessary costs, such as mining, when compared to the alternatives.
> It only seems to introduce unnecessary costs, such as mining
Who says you need mining? There's different ways to achieve blockchain consensus, such as proof of stake or proof of existence, you don't need proof of work like Bitcoin uses. Since with a private banking settlement blockchain you know in advance who the players are (individually-invited banks) you can give them a percentage of the network and have each node verify the transactions across the network. You could even give nodes to regulators or consumer advocacy groups to achieve regulatory compliance or consumer oversight if required.
As for cost, you could technically run a PoS node with a raspberry pi, a large USB drive, a wifi connection, powered by a solar panel and an old car battery on the roof of a building. Proof of stake only needs minimal computing power and a persistent internet connection.
Seriously, a lot of the scorn heaped on blockchain technology is unwarranted. Yes, there's loads of hype and bullshit (we're going to get rid of nation states and fiat currency!!!1!), but no more than the internet in 1994 or during the dotcom boom. Yes, lots of crap ideas, but some gems too. It's too early to see what real impact it will have. Criticising current blockchain technology is like criticising early broadband or smartphones.
> Financial companies and banks already trust each other
They most definitely do not, 2008 took care of that.
> It doesn't make sense for them to be held under public scrutiny
That's a matter of debate. The banks are held to, more or less, realtime scrutiny by the regulators on behalf of the public. Actually making transactions truly public would have tricky client confidentiality issues. That's why the focus has been on settlement and clearing as that's potentially more tractable.
> Therefore, blockchain is a solution without a problem for financial institutions
Possibly. The idea of a single version of the truth is very appealing to banks as a huge amount of time and effort is expended on reconciling trades, settlements etc. Whether a global transaction ordering has a use is debatable. Things like proof of work even less so.
Bear in mind, as others have said, you can take some of the features that have been applied to blockchains and use them separately. It's not a one size fits all. However, if you take away enough stuff then you often find that other technologies could be more appropriate.
> Their needs are already well met and there's little incentive to change
Not at all. No-one's really happy with the status quo. The regulators want to be sure that the banks are well risk managed. Even further, they want semi-continuous proof that it's so. The banks need to satisfy the regulators and still make money. The banks are a long way from that today.
> why uproot everything for a buzzword
They may well not but you underestimate the ability of senior folk in big organisations to get distracted by the shiny, shiny. Banks are no exception, they are just as susceptible to fads as anyone.
On the positive side, they are surprisingly good at accepting experimental technology. They've been early adopters of relational DBs, XML, Java, Smalltalk, Haskell, OCaml, object DBs, FPGAs etc etc. Of course, they're also one of the biggest users of COBOL so it's swings and roundabouts.
> Why doesn't the financial industry consider a public blockchain?
- Unnecessary uncertainty: public blockchains can fork (i.e. ethereum) or change (bitcoin block size debate, segwit, etc) unrelated to your needs.
- Dealing with forks, and various other behaviors adds lots of unnecessary complexity.
- Less secure since publicly open for anyone to attack.
- Constrained feature development that requires consideration of all actors.
- Slower and more expensive: public blockchains require world-leading mining power and lots of time (60+ mins, 6 confirmations) to remain secure from government-scale attacks.
- If proof of stake is used (untested), instead of proof of work, to mitigate the cost and time issues, then you introduce many unrelated actors influencing core aspects of your business.
I can't see why a private consortium of banks would replace their currently custom, private, controlled databases and code, with public ones.
> How do big financial companies consider resolving adversity like judgments/liens/etc against an settlement based system that's an automaton?
The system isn't an automation, there are still the same decisions being made, they are just being recorded in a smarter way that cuts out a lot of unnecessary verification/trust work. They still have relationships with each other, each other's identities, and legal agreements enforcing all their actions. If funds need to be returned, a new transaction is created to return them. Liens can be coded into assets for convenience, etc. Any automation they choose to add in smart-contract type things is optional, and can be done gradually.
Without all the public features, the core blockchain becomes very simple, basically a chronological db of signed transactions - but it still gets to keeep the sexy name.
Accounting, auditing and compliance are a massive cost for business globally. (Fines alone have cost banking $200 billion since 2009.) Blockchain accounting could help cut those costs. For example, instead of a company employing its own auditors to examine the books of its various units, all transactions could be logged on an internal blockchain, and recorded centrally. Likewise, external auditors or even regulators could inspect a corporation’s books in real time. Even the accounting firms that make their money from auditing see the value in the technology: “This solution could significantly reduce the reliance on auditors for testing financial transactions,” Matt Spoke
http://qz.com/629662/the-unsexy-future-of-blockchain-is-acco...
Banks typically already have some sort of realtime risk management system. Goldman's SecDB is quite famous. Banks typically have whatever risk controls in place they want. Blockchains aren't going to provide any magic here. The fines banks have faced haven't come from the lack of a central repository of trades.
I did, though I can't edit it now sadly. And it's not that TLS isn't secure but about what features TLS gives the system.
The gist of this is that TLS doesn't give one a durable/persistable form of security vs ppk-sig's ability to verify that x signed y at any time. TLS is much faster than verifying the sig with every transaction on every node but after, say, a cluster restart the question of "who sent x" is answered via consensus and not cryptography.
There are a couple other issues too. Using ppk-sigs means that the mail clerk and the CEO use different keys to sign transactions vs TLS where you'd either have a logical "from:" field or a different connection for different users. Both of the TLS solutions have rather obvious flaws. Finally, a TLS based approach puts an attacker 1 server away from impersonating, potentially, an entire organization because the system using TLS cares only that it came via the correct pipe.
Overall I'd describe systems using TLS as not being paranoid enough about who authored a transaction, as PBFT/SmartBFT are by default very trusting of a client's transactions vs Bitcoin's model where everything is to be questioned/require independently verifiable cryptographic proof. Hence the tradeoff.
This probably means that they couldn't find a problem worth solving with blockchain. Not a good sign for blockchain companies in 2017, expect to see more big names ditching blockchains and hype train finally coming to a stop.
I predict we will see a huge hammer come down from SEC & IRS surrounding ICOs in 2017 as well.
We're talking here about settlement of trades. Trading is already real-time and can't go much faster. It's about saving money in the settlement process.
But the question is if a blockchain system can save enough to justify migrating the whole process. It doesn't seem like it at the moment.
The other members was not happy when they found out that GS applied for patents that could affect R3. My guess is that GS thinks they will make more money on their own when they built up a nice patent portfolio in this space.
"Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out!"
Genocidal I can grant, but we are talking about bank policy here. It seems that all evidence says that the 100 years after Jackson were objectively some of the most economically dynamic for the United States, especially in comparison to Europe or any other place in the world during that period. How was the economy crippled?
It was my understanding that (and especially absent a central bank) the US economy became prone to frequent and periodic economic panics, uncontrolled periods of inflation and deflation, and general financial instability.
It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth can not be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society — the farmers, mechanics, and laborers — who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their government. There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing.
pretty damn relevant today. (rent seeking, crony capitalism, lobbyists writing the bills)
All the rights secured to the citizens under the Constitution are worth nothing, and a mere bubble, except guaranteed to them by an independent and virtuous Judiciary.
John Marshall has made his decision; now let him enforce it!
I am a firm believer that we should not judge people from the past using the moral standard of today. Remember that even Obama opposed gay marriage up until a couple years ago.
That's true. All the banks were forced to take bailout money because the concern was if a sound bank was allowed to refuse, shaky banks would either be punished in the market for accepting or worse would be pressured into refusing when they actually needed the money.
GS paid the money back literally as soon as they were allowed to.
That surprises me -- they make a lot of money from swaps and other non-exchange settled contracts' volume, especially if such contracts can be traded easily across banks. MarkItPartners is an excellent example of how all the banks made a lot of money through a consortium pushing a unified standard. Why try to make money off a patent when they can grow volume on their core product?
because they would love to unilaterally control critical pieces of next gen digital currencies enabling them to bludgeon competing standards / companies out of the market with IP licensing fees.
> GS thinks they will make more money on their own when they built up a nice patent portfolio in this space.
So instead of contributing back to the community on a openly-developed technology (not talking about R3, but Satoshi's blockchain concept), they could decide that the best course of action is to patent encumber the shit out of it!
I saw this suggestion multiple times, but I never seen any "web links" under chrome or firefox, in this article I can't find word "web" anywhere.
I found though something that worked for me, I copied the title of this article, and then clicked on the magnifying glass on top right corner, and after clicking on the article I was able to read it.
Edit: NVM, that only worked once for me.
Anyway I'm not sure it makes sense to post here articles behind a paywall.
We ought to be angry sometimes. Maybe you'll like this one better:
It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth can not be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society — the farmers, mechanics, and laborers — who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their government. There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing.
Uh, I don't see how the blockchain could be considered single-entry accounting. Every system I've seen proposed still has transactions that credit one account and debit another.
I spent a year investigating blockchain applications for JPM so I've seen most of the permissioned blockchain solutions that are out there. Unfortunately, none of the solutions I saw were real blockchains. The more technical groups in banks (which GS has) surely realize this as well. The solutions I've seen consistently lack at least one of the following necessary features:
- Fast, Deterministic BFT Consensus (mining doesn't work as intended in private contexts[1])
- Smart Contracts (you need a deterministic language)
- Signed Transactions (TLS based authentication trades security & audibility for speed)
- Cryptographic data structure for transaction storage
There are other features you need, but these are the big distinguishers I noticed. While technically you don't even need smart contracts or fast BFT consensus, I believe the tech isn't useful enough to justify the migration costs without them.
Disclaimer: I'm a founder in the private blockchain space[2] and founded specifically to make an infrastructure that addresses these issues.
[1]: http://kadena.io/blog/MiningInPrivate.html [2]: http://kadena.io