I didn't run into a paywall, perhaps because it's on the blogs subdomain. But if anyone needs it, here is the paywall bypass code for all WSJ articles:
No. "In February, we joined the Hyperledger Project — a cross-industry initiative — to drive blockchain technology and open standards in collaboration with other firms" [1].
This is proof of concept. This changes everything. The article talks about the company not being ready to use Blockchain to issue all it's bonds due to regulatory questions that still need to be answered but , i suspect, it's only going to be years not decades when this will happen. This spells out big problems to the staff employees associated with Finance.
Anyone in the Financial Industry should start getting ready for the big Finance disruption that's coming in the near future.
This is an honest question: who's jobs do we think are going to be replaced by issuing bonds on the blockchain? The people drafting the bond agreements?
The "jobs" this technology replaces were computerized in the 1960s and 1970s. The application of the blockchain only speeds up settlement because there is a single ledger between multiple parties.
This is one of the things that really interests me. It's a tool to boost honesty in traditionally exploitable aspects of business.
Hell, with something like that the public might be able to viably reduce financial regulation -- or rather preventative procedural bureaucracy -- because of the ability to trace business transactional practices.
You could do exactly the same thing with a centralized ledger and it would be faster and cheaper. The point of a blockchain is security and irreversible transactions.
Yet it is a giant leap backwards for security and irreversible transactions are a deal-breaking bug in the real world of finance. Mistakes and frauds have to be unwound.
"Finders keepers losers weepers" is a playground rule.
1) Bond issuers have backends that they have to manage. Billions in legacy software and assets. By being able to unify the ledgers then that will reduce the need for them. So anyone involved in the backend will be affected, programmers, administrators, managers, clerks. They may not be gone but their numbers will be reduced.
2) Cost of financial instruments will be greatly reduced so companies will be more likely to do the work in house. The number of financial firms will be less therefore there will be less jobs in what is now the financial industry. New jobs expertise will be needed but current expertise are at risk. Middle men will be reduced. There will be a Google/Amazon type of player that will eat the industry world wide.
3)The cost of issuing debt will collapse so anyone involved in loans will be affected.
There are many other ways that Blockchain will impact the industry but these are the ones I can think of right now.
How long? Who knows. But it will be here faster than expected. For timeline, here's one to ponder. How has the cloud affected network admins in the last 10 years? The impact has been large yet it's only been a few years since it first started.
This changes nothing. It was a publicity stunt that solved no actual problems and introduced tons of problems that didn't exist before. Except it didn't even do that because "regulators do not yet allow issuances via blockchain only, so we had to test it in parallel with the conventional issuance process."
It's a big deal imo, but a major blow for Bitcoin, because it's nowhere to be seen.
Have you ever purchased a bond? Ever wanted to sell one on the secondary market? Ever heard of the Securities Transfer Agents Medallion Program? You will if you try to trade bonds in the conventional way, which is a huge pain in the ass.
There is a lot of room for improvement by implementing the blockchain.
I don't think JP Morgan is going to give you the private key to your bond. This is a slightly more decentralized version of holding securities in street name. It's less painful than direct registration, it's publicly auditable, and faster to settle.
I mean, I hear you. I 100% get why people are interested. I just don't see why it has to be a blockchain vs a centralized database that DTCC controls access to.
Eh. Bummer. I could totally be wrong about this, and I'm super curious since a lot of smart people seem to be into it. I just don't see the reasoning behind things.
> You will if you try to trade bonds in the conventional way, which is a huge pain in the ass.
And that's a bunch of horsecrap. Do you buy stocks in your name too? No. Ordinary investors hold securities in street name with a brokerage.
I've bought corporates through Vanguard Brokerage Services, which actually doesn't have a great reputation for being friendly to buying individual securities. It's a click of the mouse and $2 per $1K face or half that if you have a large account. You can also call up the fixed income desk and do it over the phone. No problems.
A lot of these things are seemingly no-ops because the tech has to be proven and withstood tests of legality. However some of these trust-less distributed systems are approaching a point where turning them into real systems in use is a matter of contractual agreement from a customer or peers involved and or the government. The disruption will be quite sudden once this happens.. assuming the tech moves faster than the bureaucracy, as is usually the case.
Calling it a no-op is pretty naive, any significant step towards allowing bearer tokens of more tradition securities has enormous value, and each step towards it has value as well.
This is the main application for Bitcoin IMO: custody and trade settlement in securities. I have wanted to do this exact thing, issue bonds on a blockchain for some industry or government, since I found out about Bitcoin. Unfortunately, I do not have the kinds of connections necessary to be in the same room as major corporate bond sellers.
Between this news and the DTCC using blockchain for CDS it seems to me that Bitcoin is going to get left behind by the old world companies it sought to replace. Blockstream seems too happy to sit on their hands while the speculative value of Bitcoin increases, not realizing that the chance to actually matter in the world of finance is slipping through their fingers.
Ethereum's main selling point is it lets you issue illegal unregistered securities. Why would a real company want to associate with that?
Also the lead developer is some kid who believes very much in moving fast and breaking things. This philosophy may work for a social network site but not for other people's money.
How many terrible bugs have been discovered in Ethereums short history? Too many. Additionally the size of its blockchain has already passed Bitcoin. It's file size is growing so fast and will pose a serious technical problem.
Ethereum's main selling point is it lets you issue illegal unregistered securities. => Well that is the whole point of being decentralized. Anyone can do anything allowed by EVM.
Also the lead developer is some kid who believes very much in moving fast and breaking things. This philosophy may work for a social network site but not for other people's money.
=> Well they have improved significantly. There are 3 implementations - one each in cpp, go and py. There are multiple miner implementation. It is significantly more mature and many people involved. See https://github.com/ethereum/go-ethereum for example.
'terrible bugs'? there was one terrible bug a long time ago
Additionally the size of its blockchain has already passed Bitcoin. It's file size is growing so fast and will pose a serious technical problem. => Storage is not a problem. We get TB size drives now. Most people use online wallets. There are various pruning measures which reduce the size significantly. There are many proposals to handle scaling if it were to become bottleneck.
Bitcoin is used for drugs, prostitution, and gambling.
That terrible bug was the DAO, but that's the nature of the blockchain and applies to Bitcoin as well. If you want rollbacks you use a centralized server.
Wow, interesting, I had no idea something like that would be a problem. Still seems surprising to me that whoever creates the blockchain couldn't just maintain the data structure as a centralized trusted authority, e.g. if they are going to be the one paying out the bond later anyway.
We routinely hear stories about a "fat fingered" trader. While most of the trades remain irreversible, sometimes they can be rolled back too. What happens if there is a massive error (or even a hack) and the trades of say 1billion cannot be rolled back?
The problem of immutability works both ways. Surely, DTCC could build a better solution, provide say better APIs (hmmm, startup idea if someone wants to take it up) to brokers so that the information is always up to date instead of relying on blockchain.
I'm not a blockchain "expert", but this seems somewhere between misguided and insane to me. How could this possibly better than a secure web server and http user interface by any metric?
- security: how could this possibly be better than a system under your own IT's control?
- security part 2: introduces a whole new set of vulnerabilities and ways for things to go wrong. e.g. a miswritten "smart" contract.
- speed: how could this be faster than a web interface and a single server?
Blockchain solves one main problem: Decentralization. The reason for decentralization is the lack of a single trusted authority who says e.g. whether a particular transaction has occurred or not. In this setting you still have and need Daimler to be the trusted authority (unless I misunderstand), so the sole raison d'etre for blockchain is gone.
When you add that to all the downsides and security risks ... let me know if there is an easy way to bet against this.
I would say the problem they are trying to solve is security settlement between different institutions. I guess right now each institution has their own database of who owns what and it's difficult to transfer ownership between them.
What if there was one or many massive global shared ledgers all these institutions ran nodes for? You could transfer ownership of a security between someone in China and Europe instantly.
So it's better to ask companies to invest in implementing "blockchain" within their network instead say upgrading their databases or their infrastructure to the current technology level? Then they could simple have API/Middleware calls between systems which can do this even more efficiently.
Yes cause it allow for a distributed validation or concensus model rather than centralized. This open up for a number of opportunities as you dont need centralized validator
Interesting point. A big problem with blockchain-style ledgers is that the definition of "ownership" is nebulous and far from instant, only increasing in certainty over time. We each might have a different time frame before we're sure a transaction has taken place.
If there's a particular group responsible for paying out the security, then it makes more sense to me for that group to just host a ledger on their site and officially endorse all transactions (which can use the same crypto that blockchains use). This would be instant and transparent.
I don't understand how security trading works, but if there is truly no trusted authority responsible for either paying out the security or enforcing that it gets paid, then I guess I see the possibility for using a blockchain (but probably you also would want cryptocurrency...).
This is what people said about the cloud a few years ago. For good or bad, companies are more likely now to use the cloud that to set up their own server room.
Blockchain is not perfect now but the basic problem of Trust is solved. It's only a matter of time before the bugs are ironed out and people start using it.
Cloud skepticism was never on the level of blockchain skepticism.
Cloud solves a real problem of scalable and efficient resource allocation and provisioning for distributed applications, as you note, in both public and private cloud settings, a problem and concept well-understood in the research community that long predates "cloud" as an enterprisey business buzzword.
And as applied, e.g. to centralized financial institution ledgers, cloud skepticism has born out. Workhorse mainframes are still doing bread-and-butter work in mission-critical settings just fine. Where they are "modernized" it is not always to anything resembling "cloud" configuration.
Blockchain, on the other hand, "solves" the invented problems of cypherpunk, crypto-libertarian fantasy. There is essentially no application where it has met with unqualified success or demonstrated advantage outside of the criminal underworld. Bitcoin did very much help make monetized ransomware a thing, so there's that.
The whole point is to cryptographically be able to prove ownership of something to the network. Given that bitcoins, litecoins and ether aren't magically disappearing out of people's wallets I think its pretty safe to say these systems can be designed in ways which are secure (at least secure enough for the marketcaps of each of those cryptocurrencies which is billions).
If I get a piece of paper that says I own some asset there is offices full of people who are dedicated to ensuring that piece of paper properly represents some piece of land, car, security etc. Why would you not want to automate such a system?
Not to mention once you can create such a system the chains of trust can extend beyond just your bond issuance, you can tie actions from other trusted systems into your bond issuing system in a fully automated way.
> If I get a piece of paper that says I own some asset there is offices full of people who are dedicated to ensuring that piece of paper properly represents some piece of land, car, security etc. Why would you not want to automate such a system?
I've been saying this for couple of years now: the most likely "disruption" from blockchain technology is going to be in notarial functions. The concept of coloured coins[0] allows to use a globally available, publicly verifiable, and for all intents and purposes a forgery-immune register to verify contracts.
Cutting through all the [templated] legalese, we can say: "Contract A, between parties K and L, concerning transaction T: T shall be considered done and legally binding once Coloured Coin X has been paid from address [foo] to address [bar], and has been verified by no less than 20 subsequent blocks."
There will be lawyers involved, of course. Someone has to actually enforce the contracts and deal with off-blockchain disputes. But dealing with the actual physical transactions and transfers of ownership could be streamlined.
The legal side will be one of the last barriers I agree, if a court doesn't recognize the immutability of the system then it can't be used as evidence of anything. If blockchains can't be used as an audit trail for legal means then a lot of the value goes out the window.
I don't quite understand your last paragraph, but for the rest:
> The whole point is to cryptographically be able to prove ownership of something to the network.
I don't think that's the problem that blockchains solve. That problem can be solved without blockchain just by using public/private key cryptography and digital signatures, along with for instance a public ledger. But a public ledger doesn't need to be distributed and subject to consensus protocols, mining dynamics, etc. It can simply be hosted on a website.
It is though. You cant ensure ownership if there is no third party the point that of the blockchain is that it solves that issue by turning the entire network into the notarius. Public/private key cryptography does not solve that.
You're talking about a different problem - not having a trusted third party or authority. I agree that blockchain solves that problem (well, it tries).
As for the last paragraph a good example of this is the closing of a contract from an iot device signal. The device signal may be on the iot chain or chain code instance and the contract logic on another.
The only problem with your theory is how to do that with a turing complete system. I can send signatues for anything but actions which occur based on those signatures you would want a somethingwhich continues the chain of trust. Im not sure of any way to do this how you are describing while still maintaining turing completeness.
> The whole point is to cryptographically be able to prove
> ownership of something to the network.
Ownership is not the same thing as possession. Using a blockchain for bonds is analogous to bearer bonds, or even just plain cash. There's a reason why both bearer bonds and large denomination currency bills are no longer issued.
> Given that bitcoins, litecoins and ether aren't magically
> disappearing out of people's wallets
They do magically disappear. Both traditional fraudsters (e.g. Mt. Gox.) and criminal hackers take bitcoins all the time. The blockchain doesn't care, of course.
Expect in the next couple of years movies to start featuring Bitcoin heists. I'm sure the scripts are already being passed around at the studios.
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