On 12th June, Plexus were lucky enough to exhibit at the first CryptoCompare Digital Asset Summit in London.

It was an excellent day bringing together institutional, retail and regulatory crypto experts.

There were great opportunities for networking and sharing ideas, with a chance to put faces to names. It was a pleasure to catch up with clients and see so many candidates we have placed flourishing in their new roles!

The speakers brought real insight into the current state of crypto.

Get in touch and let us know what you thought of the event if you were there.

Despite the fact that the team over at Plexus make this regular newsletter possible and have a fascinating insight on the industry from a completely different angle, insight not commonly discussed in publications, we don’t often get to cover them directly.  This week however, I cornered them for a chat about their trip to Consensus 2019, the showcase event at New York’s annual Blockchain Week.

For those of you who aren’t aware, Consensus is the largest and most well-known conference in the blockchain and cryptocurrency calendar. Now in its 5th year, the event is a global gathering which mixes some of the largest companies in the world, with scrappy start-ups, and features stunts from made-up protests by “bankers against Bitcoin”, to hired Lambos lining the street in front of the Midtown Manhattan venue. Given its prominence, the event has spawned a host of other events before and after, as well as numerous parties.

Zeth and Shaun went out to join in the fun and ended up doing some business as well as getting into some interesting conversations. I got the lowdown for us.

CP: Hi, welcome back, hope that you’ve gotten over the jet-lag. Thank you for taking the time to sit down and talk to us about Consensus. First question, did you get me any good crypto swag?

Zeth Couceiro (ZC): Thank you for getting us here to talk about it, it was a great trip.

Shaun Potts (SP): Yes, thanks for this. And no, we didn’t get you any shirts, next time.

CP: Too bad, but I’ll survive. Zeth, a lot of crypto events noted that numbers were down over the last year, how did you find it at Consensus?

ZC: This was our first time at Consensus, but from speaking with people who were there previous years and comparing with what we saw this year, it felt pretty busy and was a pretty good atmosphere throughout the event. Apparently last year, it was rumoured that there were about 9,000 attendees and this year about half that. That said I would also note that there did seem to be a lot of activity outside the event in the bar and lobby. I also read an article talking about how there was quite few people who didn’t have tickets and were just networking in the lobby. I could definitely see this as there were people all over the lobby discussing their projects.

CP: Shaun, what was the overall atmosphere like at Consensus this year?

SP: There were stacks of enterprise businesses there, and relatively few traditional crypto business – the ones that were there were really focused around crypto as a vehicle for cash/trading (wallets, exchanges etc), rather than people building decentralised tech solutions. I saw more businesses trying to capitalise on that, rather than ERC20 type projects claiming they were going to change the world or be the “AirBNB of crypto” or similar grandiose/B.S statements. The space is growing up, and people are realising that they can’t spend/blitz investor/ICO cash at the rate they were in 2016-17, so more obvious use cases (stuff that makes money now) appeared most prominent. Come to think of it, the only time I really heard the term ‘decentralised’ was in the Maker talk. The session with Maker was also very interesting as they got challenged by the moderator about the stability fees shooting up to ~20%.

CP: Interesting, and that’s a great place for me to jump off on my next question. What were your highlights? Were there any moments in particular that stood out?

SP: We absolutely have to mention Andrew Yang’s interview. He was on relatively late, on Wednesday afternoon, by which point most people were conference-fatigued and the crowds had thinned, but what started as a small audience grew pretty rapidly. I had never heard of a presidential candidate speaking at a tech conference, though I’m sure they must have, but it may be a first for a crypto conference, especially when other senior politicians in the States have been bashing crypto recently. It’s a pretty risky position for him to stick his neck out and say he’s going to be crypto friendly – maybe he doesn’t really think he can win and was just being sycophantic to the crowd, who knows. But if he does win next year –even if he only wins the nomination– then that’s pretty big.

ZC: I felt that the conference overall felt a little more enterprise than I expected and with that naturally some of the talks were a little less controversial than previous years. I did like the Pete Rizzo interview with Justin Sun, the founder of Tron. Pete really seemed to be challenging him, to the point where he quoted Peter Todd [a controversial and opinionated figure in the Bitcoin community] saying why the industry doesn’t take Tron seriously.

CP: Looking back, what do you guys think could have been done better?

ZC: As a general trend, the conference showed that we have moved from ICO marketing to enterprise promoting. I feel like if Consensus wants to market itself as the go-to event in blockchain crypto then it should be an opportunity for these enterprises to make big announcements around what they are actually doing/achieved, rather than just appearing.

SP: Zeth made a great point, I’m not sure if it’s an American thing, or just a Consensus thing, but pretty much everyone we saw was just using it as a platform to push their own project which got old quickly. And it wasn’t just the enterprise guys, although they were generally more secretive, it was everyone, small and big projects alike. On the secrecy thing – you might argue that they were being secretive because they aren’t actually doing anything – ie “oohhh we can’t talk about that at this time…” read “yeah, we aren’t really doing anything but I want to make it sound like we’re doing some really cool shit in stealth mode”.

CP: I feel like Consensus is usually a pretty good “state of the industry”. What’s your TL;DR on the state of the industry right now?

SP: Shit projects who haven’t thought about how they’re going to actually generate income, like those just spending ICO cash, or worse watching it dwindle with the ETH price, are starting to fail or be cut back. All the interesting stuff is happening in enterprise with the exception of some of the DeFi [Decentralised Finance] stuff. Take the move from ICOs to IEOs – and it’s pretty much the same thing just repackaged and already on an exchange – why has this happened? I think that people still want to raise, but investors want immediate liquidity so they can jump ship if they want to. There are plenty of bitter bag holders out there, and I count myself in there – the bear market has increased levels of cynicism!

ZC: Having been in the space for years, I have noticed the flip flopping of “crypto bad; blockchain good” and vice-versa. At the moment it feels like we are moving back to the “crypto is good; blockchain is great”. By this I mean there is still a dichotomy of ideologies around this but both parties seem a lot more accepting of each other and in some instances the lines are starting to blur.

CP: And Zeth, how about specifically the state of the US crypto/blockchain industry?

ZC: In terms of a commentary of the US crypto market specifically the conference was in NYC, which generally lends itself to more finance use cases. That said I am sure this is completely different to San Francisco. I would say that generally a lot of these firms are doing business in New York but are perhaps their engineers building their platforms sit elsewhere – London, Berlin, Hong Kong. To me it this is mainly due to the sky-high salaries in the US versus Europe and the East.

CP: Ok, last question. Is it worth going to Consensus 2020?

ZC: I personally really enjoyed Consensus and it feels like ‘the’ place to be if you are working in the blockchain space. It remains to be seen if this changes, due to events like Deconomy or others. The US and in particular New York have not been particularly friendly in terms of regulatory environments, i.e. recent commentary from the SEC, as well as the [2015] introduction of the Bit License in New York state.

CP: Amazing, thank you both so much. Really interesting colour.

SP: Thank you.

ZC: Thanks for getting us on our own blog.

We also have a blog about the Deconomy 2019 event, get the lowdown here. 

Reggie Fowler, Bitfinex, Tether Funds, IEOs
FinCEN, MSBs, Crypto Jumps
We didn’t start the fire…

Colin Platt here again, so it’s been a busy few weeks for cryptocurrencies, hasn’t it? Rather than a deep-dive, we thought it would be helpful to recap some of these things just to help map it out. 

By far, the biggest story –which was actually four stories in one– centred around Bitfinex and Tether parent company iFinex.

To explain this one, we have to go back a little way to October 2014 when Tether was launched as “Realcoin”. The goal of Realcoin was to offer a token, which used a network linked to the Bitcoin network to trade an asset backed by US Dollars held in a bank account.

One month later, Realcoin was rebranded to Tether, and announced a partnership with Bitfinex. In January 2015, Bitfinex became the first exchange to accept Tether for deposits and withdrawals from customers.

August 2016, Bitfinex suffers a hack that results in $72 million being stolen. Bitfinex spreads the losses across clients’ accounts, and delivers the BFX token to represent that loss.

Then, in April 2017, Bitfinex announces that it was repaying all BFX token holders to compensate them for the losses. Later that month, Tether announced that Wells Fargo and several Taiwanese banks were blocking transfers to and from Tether.

Whilst all this was happening, notional issuance of Tether grew from $7 million in January 2017, to $320 million in July of that year. By December it had grown to $1.3 billion+ in issuance.

Some figures in the cryptocurrency community became skeptical that Tether could offer this service at this scale whilst staying below regulators’ radars, and –pointing to evidence in Tethers’ terms and conditions as well as banking trouble– accused Tether of issuing some or all of these tokens without corresponding USD balances to back them. The goal of which, these accusers asserted, was to push the price of bitcoin up. Recall that in 2017 the price of one bitcoin (BTC) went from ~$900 in January, to nearly $20,000 by mid December. Naturally Tether denied this, and by September 2018 Tethers in issue had exceeded $2.8 billion.

Several rounds of conversations between Tether executives and the CFTC, as well as attestations by lawyers, bankers and accountants later, and rumours of surrounding Tether had not been laid to rest.

Fast forward to March 2019, Tether quietly updates their website to change the assertion that each Tether is backed by cash, to include “other assets and receivables from loans made by Tether to third parties.”

Now, last month, April 2019, two big things hit the news. The first was an announcement by the New York State Attorney General (NYAG) announced that they were investigating iFinex (Bitfinex and Tether) for fraud, including the allegation that Bitfinex took a three year loan from Tether balances to cover a $850 million hole due to bank accounts seizures by Polish, Portuguese and US law enforcement due to their link with a company known as Crypto Capital Corp.

Soon thereafter, things got more interesting, when the US Department of Justice’s Southern District of New York announced that they were charging Reginald Fowler and Ravid Yosef in connection with providing shadow banking services to cryptocurrency exchanges through a company known as Global Trading Solutions. This included charges of running an unlicensed money transmitter business. The SDNY stated in the court documents that Global Trading Solutions had ties with Crypto Capital Corp.

Legal letters between lawyers for iFinex and the NYAG later ended up revealing that the loan made by Tether, from its funds, to Bitfinex, represented 26% of Tether’s funds. While the price of Tethers fell briefly following the NYAG’s allegations, the market largely shrugged off the news.

Since the revelation of the NYAG investigation, Bitfinex announced that it had raised $1 billion to shore up capital, through an “Initial Exchange Offering” (IEO) –an ICO but done via a cryptocurrency exchange. Bitfinex’s CTO later disclosed that half of that capital had come from parent company iFinex.

Staying in the United States, and on regulators, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) put out guidance last week on cryptocurrency related business models. The press release announced that “new FinCEN guidance affirms its longstanding regulatory framework for virtual currencies”.

Naturally, those involved in cryptocurrencies took a very moderate approach and considered how they were already conforming to longstanding rules… just kidding! It was mayhem on Twitter, with everyone interpreting it however they wanted. Worth noting that several of the things covered in their note hit on the topic of money transmitting, the same rules that caused a headache for Reginald Fowler.

While the document is quite technical, some highlights were that ICOs, Stablecoins, custodial wallets, some mining pools, dapps, exchanges and a host of other businesses could fall under money transmission rules. On the plus side, mixers (services that help hide transactions in a blockchain) as well as coding services aren’t likely to fall under these rules. If you’re involved in anything that looks like these, it’s worth checking that you’re complying with all the relevant rules.

With all of this drama, objectively much of it quite negative, you would think that the price of cryptocurrencies would have continued their downward trends… Well… Bitcoin moved up more than 60% over the last month, at one point nearing $8400 on Bitstamp. Of course the move north wasn’t isolated with many other cryptocurrencies registering sizeable gains.

That’s it. Well of course there are lots of other things going on in cryptocurrencies and DLT. Stay tuned, we’ll keep following up.

As always, nothing here should be construed as financial or legal advice, recommendation or endorsement of any project or cryptocurrency.

Colin Platt here once more, time for another blog, exploring some of the topics that Zeth, Shaun and I found interesting and noteworthy. Last week we shared part one of our two-part interview with Paul Gordon, where he talked about where the industry has been and the trends that he’s witnessed in the crypto space.  Today he talks to us about what’s next.

CP: Let’s shift our focus on where we are today. We’ve seen the run up in crypto prices in late 2017, and subsequent slide down pretty much ever since. What are some common challenges you see people in this space discussing?

PG: With my old trader’s hat on, I’ve written some analyses looking at the various price-cycles bitcoin has followed since its beginnings, identifying many of the similarities between the well documented price bubbles that it’s mapped out on a number of occasions now.

Having been around since the time when the first businesses in the space were forming, I have also seen the same challenges being faced, albeit at smaller scales, during each of these previous cycles.

The main challenge I see, in general, is that the majority of businesses establishing themselves within the industry (up until now), have been basing their business models purely on crypto which also means they are completely exposed to the sentiment of the crypto markets. It’s like experiencing normal business cycles on steroids and very difficult to plan for.

For those in the exchange or broking space, the major challenge is how to manage scaling up and down during these extreme periods of growth followed by extreme contractions. Unfortunately there has been a lot of scaling back and enforced redundancies over the past year since the ICO bubble popped when; investment capital wasn’t hedged; teams were scaled up too fast; traction wasn’t achieved and; money ran out.

You never want to see individuals and fellow founders go through tough times. I understand the risks that entrepreneurs take only too well but hopefully lessons have been learned and won’t be repeated next time.

As I mentioned earlier, I was never a fan of the whole ICO model, concerned that its inevitable fallout would be detrimental to the industry as a whole. At least it came and went relatively quickly though.

Many solid projects that were a little more sensible have managed to survive and will hopefully thrive in the long run will and we’ll hopefully see the next wave of innovation being built upon far more solid and realistic foundations.

I think we’re already seeing the early signs of new teams forming and raising under traditional investment terms, gaining the kind of support that is critical to any early-stage project.

If those founders and investors do also want to benefit from any future uplift in the crypto markets, my suggestion (and this is not investment advice, of course) would be to invest in the native tokens of the network protocol they have decided to build upon or upon which their own solution can operate.

Right from the earliest days when businesses started forming in the ecosystem, I always thought that investing in Bitcoin projects created a bit of a conundrum to be honest.

Typical startup failure rates (i.e. 90% will fail) were naturally still going to apply so there would obviously be an equally large number of failures in this space too. At the same time it was just as likely that bitcoin would still grow and thrive on the back of all the remaining 10%’s successes, a little bit like the perfect ETF tracker really.

If you were able to go back and buy a basket of all of the crypto companies seeded between 2012 and 2014, your total investment would, without a doubt, have under-performed bitcoin itself.

There are very few out-performers out there.

CP: One of the really big things we saw during the last bull run was a proliferation of new cryptocurrencies, and tokens. It seems like focus has consolidated around crypto like Bitcoin, Ethereum and maybe a handful of others.  Do you think that this is a lasting trend or will we see a raft of new assets if the markets pick back up?

PG: I really was very sceptical of the whole thing from the very beginning to be honest. I really never could, and still don’t understand why every application would require its own token.

We’d seen earlier attempts of the idea back in 2014 when, as I said earlier, Counterparty and Mastercoin were released. Many tokens were issued but I’m pretty sure none still survive today –  with the combined market cap of Counterparty and Mastercoin’s (now called Omni) themselves being under $10m.

I’ll caveat that by making a clear distinction between the native “network tokens” that do potentially provide the necessary economic incentives to maintain the security of their underlying networks (as per BTC or ETH, for example) and the so-called “utility tokens” that fuelled much of the 2017 ICO frenzy.

A few years before the idea took hold, one of the narratives amongst the Bitcoin die-hards was that bitcoin would one day reduce the friction we have today when dealing with so many national currencies.

Why have so many when we can have one?

Fast forward to 2017, and suddenly the narrative changes to one where the world, instead, should have a dedicated token for each end every web app!

I don’t care what anyone says, and as ex-markets guy, in a world where every app has its own token, the friction (and therefore cost) of exchange between them would become restrictively high and the user experience unnecessarily bad.

Just because you can doesn’t mean you should.

If you think about it, especially through a lens whereby “decentralisation will level the playing field for all”, we’d actually run the risk of strengthening new monopolies rather than weakening old ones.

Any underlying “token” behind the most successful decentralised apps would necessarily become the most liquid ones in the market too. Being the most liquid, they would also command the tightest bid/ask spreads and therefore be the cheapest to enter and exit.

Conversely, any subsequent competitor that came along to challenge them, whilst potentially being a better solution, would struggle to attract the same depth of liquidity for their token and so the cost would remain prohibitively high for users to access their platform when compared to the market leader.

The decentralised Amazon of the future would, no doubt, become as just as entrenched in the market as the original version is today.

Which takes us back, yet again, to “Just because you can doesn’t mean you should.”

I personally spoke to a number of projects during 2017 that were writing their whitepapers who’d say “the only thing we now need to do is work out our (so-called) tokenomics!”.

Given that the majority of these projects were planning to build on top of Ethereum, I never once heard anyone say that it might actually make sense for their applications to use Ethereum’s native token, ETH, to incentives their users instead (if financial incentives and market risk is really what their average user wants or needs in the first place) so that all of these dApps within the broader ecosystem would potentially become, you know, interoperable. Avoiding an inordinate amount of cost and inconvenience for their future users, let alone headaches for themselves with having to get tokens listed on exchanges whilst competing with thousands of others for awareness and liquidity.

You only need to look at the daily-user stats for many of these apps which once carried these ridiculous valuations to emphasise the point.

In many cases, I really don’t think there was any dishonest intent – simply a fascinating social experiment showing how easily people can get swept up in memes at a very large scale.

CP: Do you think that there will there be a place for such things in the future?

PG: Of course, there may well be. The history of new technologies is littered with examples of “right idea, too soon”. I’m just pretty convinced that any successful future versions won’t each have their own unique token.

On the flip side, we did see a much smaller number of new networks/protocols raise funding for development and subsequent (or pending) launch which may well prove themselves in the market if/when they attract a broader network of active developers and actual, viable use-cases.

In the end, I think we’ll end up with no more than 4 or 5 networks that each do something particularly well. If so, the liquidity of their native tokens will be deep enough to ensure that the friction/cost of trading between them will remain attractively low.

CP: Last question, imagine that you had a time machine, and could tell yourself one thing as you entered the space back in 2011 (other than buy more Bitcoin), what would it be?

PG: Ignore Colin’s  last question when he asks me for an interview in April 2019 and just jump in my time machine to go back and buy more bitcoins.

CP: Fair enough, thank you again for coming on, and thus proving that time travel does not exist.

PG: Big shame! Thank you again for having me.

If you missed part 1 of the interview about crypto and blockchain technology you can find it here. 

Check out the Coinscum meetup here or follow them on twitter. ​

Nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.

Colin Platt here once more, time for another blog, exploring some of the topics that Zeth, Shaun and I found interesting and noteworthy. Taking a break from our regular posts, I caught up with Paul Gordon for an insightful two-part interview covering his long history that goes back to the early days of Bitcoin and cryptocurrencies in London. We discussed what he’s seen, trends, and what the future may hold. Paul really has deep experience, so today we present part-one, and will follow-up next week with his view looking forward.

Colin Platt (CP): Hi Paul, great to see you again, and thanks for taking the time to catch up with me. Can you tell us a bit about you?

Paul Gordon (PG): Hello Colin, good to see you too, and thanks for covering me in the blog. I run the Coinscrum meetup, we started as a small group of enthusiasts in 2012 meeting at a pub in Paddington to discuss Bitcoin and have since grown, welcoming some of the most innovative people in the space.  We welcome everyone, from people first learning about Bitcoin and cryptocurrencies, to those who have been around since the beginning. I’m also a founding member of the UK Digital Currency association, one of the first industry trade associations, as well as the founder of Quantave, a company working to help bring institutional liquidity to digital assets.

CP: Paul, I want to dive right in here. What are the trends that you’ve seen in cryptocurrency and blockchain technologies?

PG: In terms of trends, given the length of time that I’ve closely been following the evolution of these technologies and since a time when it really was all about Bitcoin and not much else, I guess it’s worth looking at just a few of those trends that have persisted in some form or another since those earliest days, all if which I firmly believe will ultimately deliver positive outcomes.

Many of the most critical issues relating to the mass adoption of this technology are really quite simple. I know it feels like we have moved on in leaps and bounds since those early days but many of the most critical questions remain as true today as they did then and still await an ideal resolution.

Tribalism

One of the less-than-helpful trends that started emerging after 2012, both within the Bitcoin community and then moving beyond those borders, has been the obvious tribalism that has formed around, with mudslinging between, these various decentralised blockchain projects.

As a networking group, we’ve always tried to remain agnostic to any particular technology, confident that our members are educated enough to weigh up the pros and cons of anything we might put in front of them for themselves.

Nevertheless, the trend has been real and how damaging it might be in the long run is hard to tell. I think Arjun Balaji tackled it very well in his recent article, A Conflict of Crypto Visions, that applies Thomas Sowell’s concepts of Constrained and Unconstrained thinking to the design and development philosophies of any Bitcoin-inspired project you can care to name – the positive conclusion being that neither should be considered right or wrong, but that these naturally conflicting schools of thought will mutually benefit each other in the long run.

Fortunately, and no doubt tempered by the cold realities of another crypto winter, I sense that this problem is finally dissipating somewhat. Many of these projects are competing for the attention of a relatively limited number of developers and founders looking to build upon decentralised networks. The 2017 hype-cycle was driven by a narrative that every app we use will inevitably be replaced by a decentralised counterpart – often without any real consideration for the problem that was actually being solved or the trade-offs being introduced.

Early evidence suggests that we may need to go back to the drawing board and rework things a little if that vision is to become a reality.

However, I do detect some early winds of change with a softening of these tribal attitudes and that we’ll start seeing competing projects and their communities looking more closely at how they might complement each other instead.

Techno-attachment

When I started paying it attention, and having come from a markets rather than software development background, I was probably in somewhat of a minority within the Bitcoin community – although certainly not alone.

One of the things that quite quickly became apparent to me was that these very smart developers would often become somewhat glued to the novelty of an idea without necessarily questioning what problem it was they were actually solving – or worse, what new problems they might actually be introducing.

The basic concepts that Bitcoin has now brought to such broad attention go way beyond its underlying technology alone, opening up a wide number of non-technical considerations such as information asymmetry, human behaviour and other deeply-embedded social constructs.

I think this was less obvious when following the debates amongst the early Bitcoin development team who were mostly focused on patching the holes in Satoshi’s original code.

Bitcoin seemed to fix a particular problem very well and there wasn’t too much conversation around trying to make it something it wasn’t – apart from the early conversation relating to how the damn thing would eventually scale.

However, as these concepts started to inspire more ideas, it seemed clear to me (and many others) that the trade-offs that alternative use-cases might have to make in order to become viable weren’t necessarily being fully considered.

Just because you can, doesn’t mean you should.

For example, the conversation around Asset-Backed Tokens emerged in 2012 with the release of the Mastercoin whitepaper and Colored Bitcoin proposal.

On the surface, and from a technical standpoint, these seemed like very exciting propositions indeed, especially to simpletons like me – potentially offering the capacity to expand Bitcoin’s basic feature-set way beyond its original intent.

But it didn’t take long for some of the wiser minds on the forums to identify the risks they introduced or to question what problems they were actually solving.

For example, placing a huge amount of additional “value” (in the form of asset backed tokens) on top of the Bitcoin (or any similar) network would completely skew the economic game theory that underpins its network security.

Or that any asset backed token would carry exactly the same type of counterparty risk that bitcoin was designed to eliminate in the first place.

Or that tokenising or fractionalising something is not what makes it liquid in market terms – that’s an information problem, not a technical one.

Of course, this hasn’t stopped many of these ideas from being expounded ad infinitum, with the same questions and risks applying every much today as back then.

Decentralised prediction markets are another prime example. It’s intriguing that these things are now possible – it’s another question entirely as to whether the market will want them, with early traction hardly indicating otherwise, for now at least. My experience over the years in traditional markets tells me that demand for these things shouldn’t simply be assumed.

But looping back to the Arjun Balaji article I mentioned earlier, I’m not saying that the experimentation isn’t a good thing. It absolutely is. The Unconstrained school of thought is essential if the as-yet-unknown Killer-Apps that ultimately make this stuff fly are ever to be designed.

I just think the path to the ultimate adoption of these technologies will be somewhat different to that which most of us are imagining today.

Be your own bank!

Another clear trend with roots that can be traced back to the very beginning of Bitcoin relates to one of the hottest topics of the past year or so – crypto asset custody.

The early (and continuing) meme across all Bitcoin forums was that everyone could now be their own bank.

Amazing in principle, but questionable in reality.

As the numbers have gotten bigger, what seemed somewhat obvious to many, is now playing out on the ground with a realisation that people might not actually want to, or (in the case of highly regulated financial institutions) be able to, safeguard their own assets or wealth – trade-offs between technical theory and actual human nature abound again.

For now, at least, and for anything other than their crypto pocket-change, the vast majority of people (i.e. the 99% of the population that don’t yet own crypto) will not want to take on that responsibility for themselves, preferring to outsource it to others as they do now – essentially giving us what we already have today but with bigger security headaches.

Maybe this is simply one of those trans-generational issues whereby only time can bring about such a drastic change in mindset and, if so, we’re probably safe to assume that the much needed improvements in key management and user experience will evolve to meet that future demand once those of us that are over 30 years old have finally popped our clogs and taken our old-world attitudes with us.

Architected correctly, simple concepts such as multi-signature transactions may well introduce significant improvements over what we have now – but we’re definitely not there yet.

—

I could probably go on and identify many similar long-standing trends but I won’t for risk of sounding like a Nouriel Roubini!

I am your archetypal crypto maximalist after all. Just a rather cynical one – or, as I prefer to say, a pragmatic one!

I can see how these trends are evolving in a positive way too.

The mind-boggling explosion in awareness and investment in the space over the past two years has clearly increased the broader mind-share now tackling these issues, with the demand to do so now far greater than it ever was – this pressing need to find solutions will no doubt lead to them being found.

Most importantly, experienced talent from all walks of life and a variety of industries have now entered the space and will be here to stay – they’ll be the ones that pull the engineers aside from time to time to take a pause and ask “why?” a little more frequently.

CP: That’s fascinating, and a lot to take in. Having been there, are there any moments that you look back on and think: “wow, I really lived through that?”

PG: Ha, I’ve often said to my friends that the past 8 years of my life has been a little bit like living inside a movie. Looking back through the whole experience is really quite mad to be honest.

I think that anyone who became aware of Bitcoin back then went out of their way to deeply understand it and grasp its implications on a technical, economic and social level and will most likely feel the same.

I can well imagine that, to many of their friends and family, their somewhat unnatural obsession with it was more than a little concerning – I was more than a little concerned myself to be brutally frank!

But it’s been crazy to witness how far the idea as a whole has come in such a relatively short time-span.

I remember one of the earliest meetups in the pub when everyone excitedly got up and left early to get home when someone got a call telling them that Trace Meyer was due to appear on Newsnight to get a grilling from Jeremy Paxman about Bitcoin.

I think that might have also been the night when, in our haste, we left a large pile of the first print editions of Bitcoin Magazine that had been delivered by one of its founders on the table. When I checked on Ebay during the height of 2017 bull run, they were each selling for $800.

I think Paxman might owe us about $30,000!

But to see it then go from such a small, niche subject to become such a global phenomenon really has been a once in a lifetime experience – especially having crossed paths at one point or another with so many of the real innovators in the space; seeing friends’ businesses go from initial concept to multi-million dollar reality; recalling moments like Brian Armstrong posting the launch of something called Coinbase on Reddit and likely being one of the very first to register; sitting in a really shitty Chinese restaurant in Wood Green on a very wet Tuesday night being told about an idea called Ethereum by one of its co-founders and thinking, “hmm, that sounds cool….”; hosting events like the one in a gig venue in Hoxton in early 2014 with Amir Taaki, Andreas Antonopoulos and the Finance Minister for Guernsey all on the same stage – the energy in the room was incredible; Hosting an event at the 02 arena that saw Max Kaiser stage a fight against the World Kickboxing Champion in the name of Bitcoin! (yes, really).

It’s been a strange, roller-coaster of a journey indeed.

Part 2 of the interview on crypto and blockchain will follow next week, read it here. 

Check out the Coinscum meetup here or follow them on twitter. ​

As always, nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.

It’s time for another blog with me Colin Platt where we explore some of the topics that Zeth, Shaun and I found interesting. 

This blog will be a bit different than normal, as I took the opportunity to cover… myself. Hopefully you’ll enjoy the playful nature of it.

I had the immense pleasure of joining Jeff Paik and his team for round 2 of Deconomy in Seoul on 4 & 5 April. As was the case last year, they pulled off one of the most interesting, and unique events in the cryptocurrency industry, blending very different viewpoints on the industry itself.

Case in point, one of the first features of the event, was the long awaited debate between Ethereum founder, Vitalik Buterin, and legendary crypto-sceptic, Dr Doom himself, Professor Nouriel Roubini. Following his appearance at the US Senate hearing on cryptocurrency and blockchain last year, Nouriel and Vitalik took to Twitter to air their differences of opinion. Deconomy 2019 was where they finally came together. Despite the obvious tension that everyone had expected, I was lucky enough to see some of their preparation behind the scenes, which were quite respectful and cordial, bummer I guess for those hoping for a cage match. I even managed to get them to wear matching T-shirts, more on that later. In hindsight, during the welcome dinner the evening before the event, Vitalik and Nouriel, though they didn’t interact much, were still very much at ease around each other.

So the debate, there are a few places that you can already see it online, and the official videos for all sessions should come out in a few weeks. Nouriel landed a few very good points in my opinion, and Vitalik offered some helpful view points. Neither one of them clashed too much directly, perhaps because they really do fundamentally agree on a few key items: Proof-of-Work consumes a lot of energy, which they see as wasteful; There are a lot of scammers out there; and blockchains haven’t yet proved their value for a majority of cases that they have been billed as offering unparalleled disruption for the better. I dare go as far as to suggest that they came out respecting each other after the debate. Vitalik also did a great job at diffusing Nouriel’s criticisms regarding the uneven distribution of cryptocurrency holdings (GINI coefficients), as perhaps partially being the result of insufficient data.

Keeping with Vitalik, he did have more contentious discussions, this time with a panel on scaling Bitcoin, notably so as he wasn’t even on the panel. This panel featured several prominent supporters of Bitcoin Satoshi’s Vision (BSV), which is famously supported by Craig Wright. Hong Kong based miner, Peter Ng also joined the panel, he confirmed with me after that he wasn’t a “full blown BSV supporter”. I was sitting next to Vitalik during the panel, and he took issue with several of the points made by the BSV supporters, including legal questions surrounding segwit, and the ability for Bitcoin to scale infinitely. One of the more fun reactions was when a panellist pointed to BSV’s desire to offer services for video streaming directly in the BSV blockchain. You can see his Tweet after the panel:

Kinda disappointed @Deconomy_forum is again giving airtime to BSV shills, this time a panel of them.

At least there’s some hilarious quotes… my favorite was that Segwit is bad because separating signatures from transactions “has legal ramifications” pic.twitter.com/3M2qWUObmr

— Vitalik Non-giver of Ether (@VitalikButerin) 5 April 2019

Because I like to toot my own horn, I also want to note that yours truly got to present on my favourite topic: PTK. “What is PTK?” you ask. Well there’s a back story.

At the 2018 Deconomy event, a bunch of us arrived a day early and hung out eating pizza and talking about, what else? Cryptocurrency. One of the popular topics, the number of low quality ICO projects, and the amount of money being given to these projects. We jokingly invented the worst possible idea ever (Pitchtoken), and started intro-ing ourselves on panels and during presentations as part of the Pitchtoken team. After doing this throughout the first day of the conference, we looked it up, someone had unironically launched Pitch Token. Wow.

We quickly pivoted and called the project PTK (Pitchtoken Klassic). A few months later, I decided to make it a real token and explode the value as a playful way to show how easily it could be done.

Fast forward to Deconomy 2019, I was allowed to get up and present to the ~2000 attendees about this, with the goal of warning people about the abuse in the market and empty promises stemming from many projects. Note, I don’t think every project is a scam, but I am a strong advocate of due diligence. Of course, to go with this performance art, I had T-shirts printed for the event which said “PTK Phoundation: Always be shilling”. Of course these were the shirts that we got Vitalik and Nouriel to wear, after letting them in on the story.

It was good fun, and I managed to get a bit of media coverage, here, here and here. Oh by the way, I managed to make myself the richest person in the world in the process. Perhaps worth noting here, that the whole event took place at the Shilla hotel in Seoul. I thought it was funny at least.

The other discussions that I really enjoyed were between Phil Zimmermann, creator of PGP, Vitalik and Zooko, founder of ZCash. The discussion covered privacy and was wide ranging. They all agreed that one of the important functions and aspects to be aware of was the ability for people to control their own fate, and that privacy was one tool to help ensure that.

Outside of the onstage discussions, I noted a very different atmosphere from the year before. There was a lack of real deal making. The previous year the VCs and crypto hedge funds seemed to be actively doing side deals. This year that didn’t seem to be the case. Is this crypto-winter? Maybe. Does it mean that we’ve got further to fall? Don’t know.

Not to despair though, Crypto investors from Michael Arrington, to Bryan Chang, to Remington Ong thought that this was a great time to be an investor in the cryptocurrency and blockchain space. Remington seemed particularly bullish, and thought that the latest crop of companies that he had seen were some of the most promising yet. Cool.

Perhaps I’m also biased on this one, but the enterprise DLT companies seemed fairly content. Quieter than years past, but heads down and working. Maybe big announcements will come in time. Fingers crossed.

As always, nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.

Decentralised Finance, DeFi, Open Finance… whatever you want to call it, it’s worth a look.

It’s time for another blog with me Colin Platt where we explore some of the topics that Zeth, Shaun and I found interesting.  

Hopefully you’ve been able to keep all the trends in crypto straight. This year has seen a focus on securities tokens, stable coins, new technical features, and now: “DeFi”, short for decentralised finance. What’s all the buzz about? And why should we start paying attention.

Most closely associated with the Ethereum platform itself, DeFi could loosely be characterised by projects, which seek to offer more complex financial operations than purely movement and tracking of cryptocurrencies (e.g., managing payments and contributions to the funding of a project). Some of the ideas include creating derivatives or prediction markets, lending and borrowing cryptocurrencies, and decentralised exchanges.

These projects differ from some of the projects that came before in that they seek to remove central points of control or influence from their operations. A prime example of this is Augur, a decentralised prediction market (think of it like a betting platform), which removed all ability to unilaterally ‘pause’ contracts upon its launch in September 2018 meaning that the founding team would require that users helping to run Augur would need to proactively opt-in to accept any changes they propose. While on the surface this might not seem dramatic, the inability for developers to fix bugs and push those changes to users drastically reduces their ability to not only fix intentional errors, but also diminishes their ability to enforce changes required by courts or law enforcement. Perhaps then, in Augur’s recent past, it shouldn’t be surprising that several “assassination markets”, or predictions on when famous people (including US President Donald Trump) might kick the bucket which allow backers to profit off of being right (a factor which has led some to speculate may give rise to financial motivations to ensure outcomes, such as the death of the subject in question).

In less gruesome instances, prediction markets and their more traditional cousins, derivatives have begun to gain transaction with participants trading with each other to speculate on, or hedge against price movements in things like USD, the S&P 500 index, ETH and BTC.

Of course, one of the core functionalities of finance is helping manage money over time, rather than between one place and the next (e.g., payments). You and I know this as lending, when a bank gives you a loan to buy a house, they are effectively allowing you to take money from the future and spend it today to purchase a house. MakerDAO and its corresponding stablecoin DAI, allows ETH holder to borrow against a percentage of their ETH stash and create a new token (DAI) which tracks the value of 1 USD. This is like a fancy digital home equity line of credit, in which banks allow you to borrow against the value of your home to have cash in your back account. Maker allows you to place Ether (ETH) into a smart contract called a Collateralised Debt Position (CDP) and from there issue DAI. Let’s take an example, ETH is currently worth $150, we place 10 ETH ($1,500) into a CDP, this allows us to issue a loan to ourselves for 1000 DAI which can be used onward for whatever we’d like. The money issued as DAI also have an interest rate (which goes through a complicated conversion process) and currently equates to 3.5% annually. Of course as these are loans, in theory, they eventually need to be paid back but they can be renewed provided that the CDP has enough ETH to cover the issued DAI.

Another interesting project, Uniswap, seeks to put a new twist on the decentralised exchange. Rather than simply being a platform that allows users to trade tokens using smart contracts, without a central arbiter, Uniswap seeks to incentivise market makers to continuously offer liquidity buy always posting both a bid and offer for the exchange between ETH and an ERC20 token. A market maker could, for example, place a quote for 1 ETH and 150 DAI. The way that they do this is to actually place 1 ETH and 150 DAI into a specific smart contract. Someone looking to buy DAI could place 0.5 ETH into the contract and withdraw 75 DAI. If there are more than 1 market makers they are placed next to each other and the cheapest trades first. The hope is that this feature will help bring greater liquidity to decentralised token exchanges and reduce dependence on centralised cryptocurrency exchanges, something that more traditional decentralised exchanges have struggled with.

On top of these projects, one of the interesting concepts is what I like to call “composable finance”, the ability to combine different functions into new products. Compound is one such project, they allow users to lend tokens and earn interest. Want to do that without the price risk of something like ETH? And without going through a centralised platform? Lend DAI through Compound…

I suspect that we will start to see more radical integrations between projects offering more powerful products that fit a variety of financial needs, it might not even be too far away to suggest that lending rates from such projects are used to calculate the discount rate on decentralised derivatives platforms, or finance the development of new crypto projects in a form very different from that shown by ICOs or securities tokens.

As always, there are lots of unknowns, as well as more than one or two things that have raised eyebrows at regulators and law firms alike. It will be an exciting space to watch develop, and may lead to interesting new innovations, but we’re also very likely to hear of less rosy stories as well.

As always, nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.

Colin Platt, again, time for another blog, exploring some of the topics that Zeth, Shaun and I found interesting and noteworthy. This week we look at cryptocurrencies.

For those of you who have been living under a rock, last week JP Morgan –the largest American bank– announced JPM Coin. A digital currency backed by deposits held at JP Morgan, aiming to speed up transfers among its institutional clients and reduce costs.

Regardless of where you stand on banks’ entry into the cryptocurrency space, it is interesting to see it happen during one of the deepest and longest bear markets since the advent of crypto assets. Of course JPMorgan is far from the first to experiment with crypto assets that seek to capture some of the benefits of cryptocurrencies, whilst reducing their price volatility. Let’s talk about some of the more well known efforts, and some of the reasoning behind why people believe that they are important.

Though a definitive definition has not yet been fully agreed across the market, in general there are two types of crypto assets that can be viewed as ‘stablecoins’, first are those backed by “crypto collateral” (e.g., Bitcoin or Ether fiat collateral) which are then transformed into more stable units of account (e.g., Dollars). The other are those backed by actual underlying fiat-balances (e.g., cash in a bank account). Though not exclusively, a majority of stablecoins seek to track the price of $1.00 (USD).

There have also been attempts to create a third type, “non-collateralised” or algorithmic stablecoins, the most well known of this type was Basis, which raised substantial funding from VCs and shuttered its doors last year, citing regulatory concerns.

BitShares

The first major attempt to create a stablecoin was a project by Dan Larimer –of Steem & EOS fame– launched in July 2014, called BitShares. BitShares was a multicoin system, which launched a native token with a fixed issuance and floating exchange rate (Bitshares, or BTS). These tokens could be locked up and used as collateral to create a second layer of token which sought to follow the price of any other asset, such as bitUSD, bitEUR, bitJPY, bitGold, etc… Due to problems in the design of these protocols, it has been noted on multiple occasions that they were unable to ‘hold their peg’ (i.e. bitUSD traded at prices substantially different from $1.00), and sometimes for extended periods.

Maker and DAI

An Ethereum-based project, Maker was initially launched in 2015, and nearly three years later the team launched their DAI stablecoin in December 2017. Like BitShares before it, DAI seeks to use crypto collateral to provide underlying value on which a Dollar stable token can be built. However, Maker departs from the Bitshares model by using other tokens to derive this value, namely Ether (Ethereum’s native currency), and in the future other more widely traded Ethereum based tokens (e.g., 0x, REP). If you’re interested in getting into the weeds, they maintain an interesting site with tons of data related to the underlying flows at https://mkr.tools/.

Tether

Perhaps the most well known fiat-backed token, and certainly the largest stablecoin, is Tether (or USDT). In addition to the well known USD token, Tether also offers a EUR token (EURT). Tether was initially named “Realcoin”, and issued its first tokens in October 2014, on the Bitcoin blockchain via the Omni protocol layer (previously known as Mastercoin). Tether states that “every tether is always backed 1-to-1, by traditional currency held in our reserves.” Tether remained a relative footnote for the cryptocurrency community until 2017, when the number of circulating Tethers exceeded $1 billion, eventually nearing $3 in mid 2018. Rumours that Tethers were being created without matching underlying deposits, an incident involving the theft of $31 million in Tether (which were later immobilised), and ties with the Bitfinex exchange all thrust this asset into the forefront of cryptocurrency discussions.

The Ethereum fiat-backed bunch: TUSD, PAX, USDC, GUSD

Partially due to the success of Tether, partially due to questions surrounding it, 2018 saw a flurry of activity on the Ethereum network to create tokens whose price sought to mimic that of $1.00. The first was TrueUSD (TUSD), launched by the TrustToken project in January 2018. TrueUSD aimed to conform to more rigorous procedures to reassure buyers that the appropriate deposits backing their token were in fact where they should be, and introduced controls for more effectively adhering to legal and regulatory rules, such as KYC and AML procedures. Soon thereafter the Paxos team launched “PAX”, Circle launched “USDC”, and the Winklevoss brother’s Gemini launched “GUSD”, all seeking to couple price stability with better attestation and regulatory conformity.

All this brings us back around the the JPM Coin (JPMC). While at first glance it may appear that JPMC competes with the likes of Tethers or the Ethereum fiat-backed stablecoins, for now it is only to be launched on a permissioned version of Quorum (a forked version of the Ethereum protocol with zero-knowledge proofs), and available for movements between accounts at JPMorgan. They have stated their desire to extend this to other “standard blockchains”, what exactly that means I do not know, but I’m curious to watch this project.

So why are people interested in stablecoins?

The allure is fairly clear, whether you intend to use cryptocurrencies for payments, building other products (such as prediction markets, loans or securities) having a unit of account that doesn’t regularly move up or down 10% per day is helpful. A majority of cited uses for stablecoins is holding them instead of more volatile cryptocurrencies during a market downturn, paying for good and services, and sending between cryptocurrency exchanges. Use cases in the Ethereum ecosystem largely focus on the more exotic “decentralised finance”, or “DeFi” uses such as decentralised exchanges (DEXs), prediction markets, and paying interest/coupons on securities tokens and peer-to-peer lending.

Whether this is a passing fad, or something more long term remains to be seen. And it is perhaps curious to see that a majority of these projects have been launched during cryptocurrency bear markets, and ironically worth mentioning that it was Ho Chi Minh who said it best:

“Remember that the storm is a good opportunity for the pine and the cypress to show their strength and their stability.”

If you’d like to understand more about the history of crypto collateral stablecoins (and non-collateralised stablecoins), Bitmex wrote a great piece last year.

Note: Nothing in this post should be construed as investment advice, legal advice, or a recommendation of any cryptocurrencies, particular project or crypto-asset.

Interested in reading more about cryptocurrencies? Read part one of our interview with Paul Gordon of Coinscrum here – where he talks about the early days of Bitcoin

Colin Platt, again, and we’re back with our regular blog programming, exploring some of the topics that Zeth, Shaun and I found interesting and worth exploring further.

A lot of people have been talking about securities tokens, in this post we’re going to look at what they are, how they are different, and a bit about why people are excited.

Securities obviously exist today, and usually in a digital form, so what’s the reason for tokenising this?

Efficiency and cost of moving a token versus the perceived cost of doing the same process through traditional means (i.e. with a broker-deal, and at an exchange then through your custodian bank and perhaps central securities depository), is generally cited as the main reason. However there are other potential benefits. Pointing towards the relatively strong buy-in, high trading volume seen in cryptocurrency markets and relatively low cost of issuance,  proponents see the potential to create markets and trading opportunities for assets which currently are illiquid (like real estate) or all-together untradable.

So what brought us to here? We know that initial coin offerings (ICOs) have kind of been a big deal, and the most popular implementation of an ICO token was done via the Ethereum ERC20 token standard.

Broadly speaking, the projects raising funds with ERC20 tokens can be split into two camps.  Firstly, those using the ERC20 token as a stand-in for an allocation of tokens in a future service, which will eventually have a greater range of functionality onchain. And, those using ERC20 tokens to raise funds with no firm intention to develop the smart contract on a blockchain. For the latter, many lawyers, and regulators have suggested that the mechanism (ERC20) and the approach to fundraising (usually light on Know-Your-Customer “KYC” and Anti-Money-Laundering “AML” processes) may not be appropriate.

Enter the STO.

STOs don’t start with the pretense that their token will be used in any way for a function other than representing ownership and rights in a common enterprise, though some may also potentially give legal rights to convert into another form of token (utility token).  Though lots of rules depend on the legal jurisdiction in question, at a minimum it is commonly understood that a security token should allow for tokens to be blacklisted from a party who is not legally allowed to own them. There may also need to be a function that allows for a pre-approval (whitelist) before initiating a transfer.  These rules clearly fall under KYC and AML regulations, as well as other potential rules. As the functionality of ERC20 token are pretty basic, transfer and approve, members of the Ethereum ecosystem saw an opportunity to improve and have made a few competing standards proposals (ERC777, ERC1462, ERC1410, ERC1411 and the Harbor supported R-Token, amongst others). Nothing has yet achieved the adoption that ERC20 current enjoy in the ICO space.

Beyond the technical functionality of the tokens themselves, other activities including the initial sale of securities tokens, the trading of securities tokens, and custody of securities tokens may also incur greater regulatory scrutiny, requiring issuers, investors, brokers, and exchanges to retool and reinvest to support these activities. Some of the interesting companies at the forefront of this include, Harbor, SharesPost, TokenSoft, and tZero.  Despite the apparent bear-market in cryptocurrency-land, many large mainstream financial institutions, like the Swiss Exchange (SIX), or NASDAQ have begun stating their intentions to support these activities in the near future. While many others have said, behind closed doors, that they are closely watching the developments in the space.

Perhaps opportunity abounds?

While, personally, I remain unsure of many of the promises of efficiency and new liquidity which many security token-supporters claim will come as a result of tokenisation, particularly when the cost of regulatory compliance is added on at the service provider level, it would be wrong to entirely discount this phenomenon. Should issuers and investors truly find benefits from tokenisation, service providers who have started to make inroads could benefit in scales which dwarf the 2017 ICO phase by an order of magnitude. Whether this has a positive (or negative) impact on cryptocurrency prices, however, is currently unclear (I’m certainly not giving trading advice). It is probably good for people who understand these new markets, and/or the markets that they are attempting to disrupt.

As always we hope that you enjoy this series of fortnightly posts, and welcome your feedback.

Note: Nothing in this post should be construed as investment advice, legal advice, or a recommendation of any particular project or crypto-asset.

Hi, I’m Colin Platt, co-host of the Blockchain Insider podcast, and a cryptocurrency and distributed ledger researcher and specialist. Happy New Year 2019, may this be a prosperous year for all of you. Zeth, Shaun, their team at Plexus and I have had a lot of talks about what is happening beyond pure banking in the blockchain space, so we decided to change up our regular posts this week with an insightful interview with Areiel Wolanow, MD of Finserv Experts. Areiel has had an amazing experience around delivering new technologies at large financial institutions, including within insurance. He also served as an expert and advisor to governments on blockchain technologies.

CP: Hi Areiel, thanks for agreeing to speak with me. Could you share a bit about who you and Finserv Experts are?

AW: I am the managing director of Finserv Experts, a small consultancy firm that provides both delivery and advisory services for DLT solutions. I have led the delivery of working blockchain solutions for a number of global financial enterprises, such as HSBC, Bank of America, and Lloyd’s of London. On the advisory side, I have engaged with several central banks and financial regulators around the world, addressed the G20, and am currently an expert advisor for the UK Parliamentary working group on blockchain.

CP: When you speak with large companies or government and high-level groups, how do you explain that innovation that you see in blockchain technologies?

AW: Blockchain is the latest answer to what is probably the world’s very first business requirement: the need for an independently verifiable future commitment between two or more parties. This need first emerged when we evolved from hunter-gatherers and first started planting crops and living in cities and villages, and many of the world’s most important business innovations – from writing to money to accounting to enterprise software – were simply better ways of addressing this one very old requirement. What DLT offers is a way for different people or organisations to share a single version of the truth, but still physically and legally own their own data. When I present on DLT, a simplistic but very effective definition that seems to work very well in getting the main idea across is: blockchain is simply Dropbox for ledgers. You write a transaction once, and it is automatically synced to the ledgers of every party to that transaction.

CP: A lot of people equate enterprise DLT with banking. You work a lot with the insurance sector. What are some of the pain points in that market and in your mind, how are these innovations relevant to solving these problems?

AW: The insurance industry tends to be thought of as being particularly resistant to rapid change. Given that the goal of insurance is to more effectively manage risk, most people both inside and outside the industry are okay with this and see the inherent conservatism as a good thing overall. But radical innovations can and do happen in insurance. In my lifetime, for instance, retail brokers for most forms of personal insurance have gone from being ubiquitous to virtually non-existent due to the fact that aggregators have a business model that serves most people’s needs far more effectively and efficiently than retail brokers were able to. DLT offers similar transformative potential as a clearing mechanism between multiple parties, a fraud detection aide, a loss mitigation tool, and most excitingly of all, as a way of delivering insurance to billions of people who are in desperate need of risk mitigation, but have never been able to obtain insurance at a reasonable cost.

CP: Compared to banking and other financial services, would you say that the insurance market is more or less aware of these technologies and the benefits you described?

AW: Awareness of the basics of blockchain, and of DLT more broadly, has largely become mainstream; insurance executives are just as aware of its potential as leaders from most other industries. Technical expertise is likewise becoming less difficult to come by; blockchain is quite elegant as a solution and is surprisingly easy to code. But there are two main challenges in bridging the gap between a conceptual understanding of blockchain’s potential and kicking off the technical implementation of a defined solution.

1. Articulating a business case for blockchain can be extremely challenging. This is due to the fact that adopting a DLT solution effectively means embracing a completely distributed business model. Distributed business models are new, and there are very few reference cases upon which delivered business benefits can be articulated and measured. And while it might be getting easier to find programmers who can build blockchain solutions, finding someone who can help write a good DLT business case is still quite difficult.

2. Stakeholder engagement for DLT projects is even more difficult than for other projects. Inadequate stakeholder management is already the main source of failure for IT projects in general and causes far more problems than any technical issues. With DLT solutions, by definition you are dealing with multiple parties, so instead of getting commitment from a single organisation, you have to secure commitment throughout the delivery life cycle from multiple organisations to have any chance of successful solution adoption. Finding someone who is good at this is far more difficult than finding a good programmer.

Addressing these challenges was the main reason we founded Finserv Experts about 2.5 years ago and remains our primary focus.

CP: Given these challenges around moving to a distributed model, what is the insurance industry looking at doing today? Do you see the UK insurance industry as a likely leader in adopting real implementations of these technologies?

AW: Most insurance executives already understand the transformative potential of DLT; as I alluded to above, the challenge is being able to turn that understanding into a workable plan for delivering a concrete solution. But the UK is phenomenally well placed in terms of global thought leadership. A good number of the world’s most successful and innovative insurtechs are UK based, far more so than its proportional share of the global economy. This is partially due to the crucial role that London – and Lloyd’s in particular – plays in the global insurance market, and partly due to the UK’s blockchain leadership in general.

CP: You also work with other technologies, such as machine learning. How do you see blockchains and machine learning working together? What are some areas where you see potential?

AW: While the benefits delivered by blockchain and machine learning can often be complimentary, they are usually thought of as being quite discrete from one another; they might end up in a single defined solution, but the business case costs and benefits would typically be separate line items, as would the resource estimates and delivery plans. But there is one area of interest that is starting to garner significant interest: data quality. Data consistency is already a problem in most single enterprises; it becomes even harder when multiple enterprises try to share a single version of the transactions between themselves. A good blockchain solution can make much of this problem goes away, and this creates huge opportunities in the machine learning space. Organisations that agree to use a DLT solution can potentially benefit from machine learning insights driven by a far wider learning base without having to reveal confidential customer data or commercially sensitive transaction data in the process. We are starting to see this happen on a microinsurance project we have going on right now in Southeast Asia.

CP: Switching gears, we talked a lot about blockchain, but what about cryptocurrencies specifically? Are insurance companies interested in bitcoin and Ether, or is their focus restricted to blockchain technology?

AW: Some insurtechs have experimented with accepting cryptocurrency as a form of payment for their products and services, while a number of insurers – especially in the London market – have begun writing policies for coverage of cyber risks. But specific insurance coverage for crypto-denominated assets is not something I have seen significant support for yet. Adoption of digital currency – be it crypto or fiat – is inevitable but will take place over decades rather than years. As of now, most crypto assets behave more like speculative asset classes than they do like currency, and increasingly they are coming to be regulated that way as well. This consolidation of treatment is likely to make it easier for insurance companies to offer crypto-related products by providing patterns upon which they can define and price those products, but it is still early days.

CP: Crystal ball, what does 2019 look like for blockchain technologies?

AW: 2019 will be an exciting year for DLT. A number of significant, global enterprise scale DLT solutions are scheduled to go live this year. Most of these will fail, as is the case with any new IT solution. But the few that succeed will provide a pattern which both investors and implementers will use to gain increasing competence and confidence to start gaining tangible benefit from the incredible potential that DLT has to offer.

CP: Wow, I’ve been hearing that ‘go-lives’ are scheduled for “next year” for the last few years. I am pleasantly surprised to hear that we’re moving forward and brave enough to schedule them for this year now. Thank you very much for sharing your insight and expertise. I wish you all the best in 2019.

AW: Thank you very much. All the best to you and your readers too.

Please let us know what you think. Where are the benefits of DLT? Where are the opportunities? Is this the year we go live? Which other industries would you be interested in hearing more about?