Úno 23

Database? First Commercial IBM ‘Blockchain’ Touts 4 Nodes, Immutability

· February 23, 2017 · 9:30 am

Northern Trust and IBM have released what is being called the first commercially deployed blockchain-based solution for finance. But is blockchain the right word for this platform?


‘First Commercially Deployed Blockchain’

The trend towards “chainwashing” is growing with companies using the Blockchain buzzword as a means to get attention and funding.

Although companies are attempting to build functional applications using distributed ledger technology, they often come as solutions to nonexistent problems. Such might be the case with the open-source project by Northern Trust and IBM.

Bitcoinist_IBM 5D Blood

Northern Trust, a Chicago-based funds administrator has partnered with IBM to devise what is being called the first commercially deployed blockchain-based solution for finance.

In a bid to cut costs and disintermediate in private equity administration, these two companies devised a ‘blockchain-based’ platform currently being administered by Geneva-based Unigestion, which manages $20 billion USD, spread across private equity and other asset classes.

According to Justin Chapman, Northern Trust’s head of innovation research, the process of private-equity fund administration is currently a manual one. But thanks to blockchain technology, administrators can “agree on the legal documentation for distribution as soon as the lawyer gets to the paperwork,” due to the immutability provided by the blockchain.

There’s just one problem, however. Immutability is not a property of blockchain technology but the Proof-of-Work (PoW) consensus algorithm used in Bitcoin, for example. The author of “Mastering Bitcoin,” Andreas Antonopoulos, explains:

The ‘Immutability’ Myth

Although there are currently many solutions for private-equity fund management, Chapman sees one clear advantage in using blockchain technology. He (incorrectly) states:

Blockchain makes this immutable.

Although public blockchains secured via computing power (PoW) can guarantee immutability, private blockchains cannot be considered tamper-proof since the participants are still required to trust the entities that maintain the network. Such entities are often referred to as “validators” in private blockchain systems.

Additionally, this IBM/Northern Trust blockchain will be tiny consisting of just four nodes wheareas Bitcoin has around 6,000. The regulator—in this case the Guernsey Financial Services Commission in the crown dependancy of Guernsey—will be one of the entities with access to oversee transactions and other data.

In this sense, the platform is essentially a distributed database with designated user privileges since the various parties involved “will have access to different layers of data,” according to Chapman.

blockchain

Meanwhile, actual immutability in the most secure blockchain today, i.e. Bitcoin, derives from a distributed ledger secured by thousands of computers (miners) with their hashing power.

Although it is unclear what consensus mechanism will be used in Unigestion’s platform, Bitcoin is by far the longest and most tamper-proof blockchain to date thanks to its PoW consensus algorithm. Given the number of miners that secure it,  the amount of computational power needed to tamper with the Bitcoin blockchain is “unfathomable” and currently doesn’t exist on this planet, according to Antonopoulos.

Meanwhile, others are beginning to concede this fact. Blockchain consortium R3 has scaled back its blockchain ambitions, acknowledging that no blockchain is actually needed in its Corda platform.

Vaultoro exchange co-founder Joshua Scigala reacted to the news, tweeting:

Will companies eventually find a useful way of implenting blockchain technology?  Share your thoughts below!


Images courtesy of Twitter, Shutterstock

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R3 Seeks $200 Million In Funding

Source: bitcoin

R3

The innovation firm R3 CEV is a consortium focused on “empowering the next generation of global financial services technology.” According to the Financial News publication, the New York-based company has just announced its looking to raise $200 million USD from the some of the 42 banks involved with the group.

Also read: Talking Crix with Founder Dmitry Koval

R3 Is Looking For It’s Banking Buddies To Invest

Financial News reports that discussions are just beginning and the group’s developers led by David Rutter have already been simulating the firms proof-of-concept. Back in April, the company revealed some info on its protocol Corda which they’ve been testing for the past six months. R3’s chief technology officer Richard Gendal Brown details in a recent blog post that Corda isn’t like your typical blockchain. The work has been researched and catered to at R3’s development lab and products produced will not be owned by investors.

Distributed ledger technology has offered the world a new look at finance and can change the environment with a multitude of new technology use cases. Legacy institutions who are working with R3 include JP Morgan, Goldman Sachs, HSBC, Mitsubishi UFJ Financial Group, Morgan Stanley, National Australia Bank, Royal Bank of Canada, and more. At R3’s Collaborative Lab, Tim Grant, stated back in March:

“This is the first time many ledgers have been run in parallel by many institutions in a rigorous, scientific way,”

According to the Financial News publication, a source said that one proposed idea on the table to raise money is a ten-year stake in the company and its operations. R3’s development lab was described by David Rutter in an interview with American Banker’s Robert Barba. Rutter explained the lab is under supervision and financial institutions are allowed to participate. Rutter states:

David Rutter, R3 CEV

“It brings a technical discipline to make sure the experiments are run in a controlled fashion. We are taking a thoughtful approach to choosing our use cases in part because we are not venture-backed. We don’t have to spin up some use case and promote how we are going to make billions of dollars in a short period of time. So, build the foundation first, then have a lab where very smart people come in and test proof of concepts. From there, we pick what we build to commercialize it.”

The difference between Corda and your average blockchain is the prototype is designed with industry standards and regulatory processes in mind. There is no native currency and CTO Richard Gendal Brown has established publicly on the R3 blog the Corda protocol is “not a blockchain.” If the company raises the $200 million, it will surely help push this new framework to global institutions. As the Financial Times states the conversation of funding has just begun but the firm is looking for backing from its banking constituents. With the blockchain fervor spreading across the finance world they just might get it.

R3 Is Not the Only Firm Trying to Sell This Technology

However, the R3 consortium has lots of competitors nipping at the blockchain phenomenon. On April 6th, a successful test of blockchain technology and smart contracts were used to manage post-trade lifecycle events for credit default swaps. The test was run by blockchain-based companies Axoni, and Markit amongst some legacy institutions. The banks who backed the working group included Bank of America, Merrill Lynch, Citi, Credit Suisse, J.P. Morgan. So R3 has stiff competition in the privatized digital ledger field with the same financial institutions shopping the fintech market. Alongside these companies, there are others looking to offer enterprise blockchain solutions. Businesses like Chain, Gem, and projects such as Hyperledger are most likely also sweet talking and showcasing product to the same investors. 

What do you think about R3 CEV looking for $200 million in funding? Let us know in the comments below.


Images courtesy of R3 CEV websites and Linkedin

 

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