How much of the financial back-end should be rebooted by blockchain?

A discussion on blockchain's use in capital markets got a much-needed jolt today at Money2020 in Las Vegas when a small argument broke out over this question toward the end of an afternoon session.

Despite broad agreement on the technology's viability in this area of the financial industry, divisions began to emerge when Credit Suisse's Emmanuel Aidoo challenged Nasdaq's Yolanda Goettsch over how inefficiencies in the equities markets could be resolved with blockchain.

For example, while Goettsch argued that the market today is already "very liquid" and "very resilient", while Judd Bagley, head of Overstock subsidiary tØ, put forth a starkly different categorization.

Goettsch asserted that just because blockchain could enable a 10-minute settlement time, a advocated by tØ, that doesn't mean that would be beneficial for the industry to upend its existing processes.

Goettsch told the audience:

"If you have to pre-verify that assets and cash exist, that changes everything. That's just not how the markets operate right now. We use that time to confirm that the regulatory processes are met, there are a lot of players in the system like market makers, high-frequency trading firms that don't operate [that way]."

Bagley, however, asserted that perhaps technology should disintermediate parties that are now unnecessary, though the tone of the argument took aim at what he inferred was the bias inherent in comments from financial institutions.

"There are a lot of people who will be disintermediated. [But they're] the people at Wall Street they see at lunch everyday. We're in Utah, we don't care. We've taken a burn it down and start over approach," Bagley said.

Bagley went on to contend that systems like blockchain would make events like the 2010 flash crash "impossible", while reducing the length of time they take to investigate.

Notably, Aidoo also played a role as mediator in the conversation, suggesting that he sees the transition to blockchain in capital markets as one that will expedite settlement gradually, accelerating it so that trades settle on the same day instead of three days later.

Aido further hinted that certain affected entities, like high-frequency traders, are already working on blockchain pilots, and that Credit Suisse is exploring how the balance of issues discussed in the conversation should be best mediated given the potential savings.

However, he sought to suggest that the technology should lead to a rethinking of existing processes.

"We should be thinking about moving that word 'clearing' out of our process," he said.

Later on, R3 general counsel Jacob Farber discussed how issues like the one debated onstage have so far held back collaborations between the open-source blockchain community and traditional financial institutions.

The comment also provided an example of the role R3 has played in increasing understanding of the technology. For instance, Faber cited how R3 has provided a sandbox for the testing of technologies including ethereum and Ripple by major banks.

"There's this tough problem of what can and should the technology replace. Figuring out what the right answer, to tear it down, if you're one of the financial exchanges, you think that's a terrible idea. The industry is trying to find a way to make sense [of this]," he said.

Elsewhere, there was broad agreement that there are inefficiencies in the current financial markets, as well as an increasing interest in blockchain applications and the role they could play in finding solutions to these types of issues.

Scott Robinson, FinTech director at Plug and Play, for example, related an anecdote about how the blockchain message is resonating.

"Three years ago, I remember talking to some executives at Exxon Mobil. A year ago they said they're looking at blockchain," he said.

Aidoo summed up this transition further, laying out his vision for the industry in 2016 and beyond.

He added:

"2015 was the year of hype, 2016 was the year of the POC and 2017 will be year of delivery."

Image via Peter Rizzo for CoinDesk

BankingCapital MarketsMoney2020Settlement & Clearing

Original author: Pete Rizzo

"We've been quiet for a long time, but it's not because we're not running."

Launched in 2014, bitcoin startup Coins has focused on promoting financial inclusion in Southeast Asia. Armed with services in the Philippines and Thailand, Coins garnered early interest from major merchants while signing up more than 500,000 app users – yet, it hasn't been public about its activities since 2015.

That might soon change, however, as Coins has raised $5m in funding from an impressive array of global investors to further develop its mobile wallet and supporting services such as remittances and bill payments.

Announced today, the Series A round was led by Accion Frontier Inclusion Fund, a fund dedicated solely to startups focused on financial inclusion. The round also included participation from BeeNext, Digital Currency Group, Eric Schmidt's Innovation Endeavors, Global Brain, Pantera Capital, Rebright Partners and Wavemaker Labs.

Notably, the investment included support from two innovation labs backed by major telecom providers in the Philippines: Kickstart Ventures, a wholly owned subsidiary of Globe Telecom; and IdeaSpace Foundation, an incubator backed by First Pacific, which owns telecom providers including Smart Communications.

Reaching the underserved

It's the latter two investors that CEO Ron Hose believes offer his startup the biggest avenues for growth as it tries to reach its target of 600 million customers.

Hose told CoinDesk:

"We've actually worked closely with them so we can facilitate payments to their mobile wallets and send money to any phone in the company. They have infrastructure locally, we help facilitate more usage of the infrastructure."

One reason for this traction may be that, unlike many bitcoin startups (which focus on digital currency), Hose said Coins uses the blockchain as a "transfer protocol", or a means to the end of serving the underserved in its target markets.

Hose further explained that Coins customers don't have to carry exposure to bitcoin's volatility, since they have the option to hold funds in Philippine pesos or digital currency.

"We're big bitcoin fans, but people who are unbanked, they can't afford volatility," Hose said.

In statements, participating investors like Ganesh Rengaswamy, partner at Accion Frontier Inclusion Fund manager Quona Capital, spoke broadly about how they believe digital currencies could play a role in promoting financial inclusion.

Bank collaboration

Rather than go for disruption, Hose credited Coins's growth in part to its willingness to embrace working with larger partners.

"The reason that we've built so many partnerships is you need to work with the banks. You need to work with telcos, governments, non-profit organizations and bring everyone to the table," he said

So far, Hose argues this has allowed Coins to find creative ways to serve customers. For instance, he noted how his startup now enables "cardless withdrawals" at 450 ATMs. Rather than use a debit card, Coins users can enter an SMS code and gain access to cash.

"They get cash out right out away. It's 24/7, it's the most convenient remittance you will find. This is rain or shine," Hose continued.

Elsewhere, Hose has expanded to services that might seem unconventional in more developed markets. This includes offering door-to-door cash delivery and service at local convenience store chains, which he asserts are all part of a larger strategy.

Hose concluded:

"For us, it's not about getting press, we have a mission to reach as many customers as possible."

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coins.

Image via Pete Rizzo for CoinDesk

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Original author: Pete Rizzo

Willy Woo is a New Zealander with 15 years experience founding multiple startups. He's also an angel investor, traded derivatives during the 2008 world financial crisis and, since 2013, has been fascinated and excited about cryptocurrency.

In this article, Woo presents his simulations of cryptocurrency index funds, which suggest that bitcoin is hard to beat.

This year, the idea of managed portfolios and index fund portfolios has been on the rise, you can bet on many hitting the market in 2017. It’s a popular idea borrowed from Wall Street. For stocks 99% of index funds (namely funds that buy the entire market passively), outperform actively managed funds.

Sounds like a great idea for crypto-land right?

I’ve been running simulations in the alt-coin markets to see if this is true. If so it would be prudent to diversify across many altcoins as a higher performance investment over bitcoin.

The results are surprising.

This simulation spans 16th October 2013 through to today – exactly three years. Earlier than this, and you’ll find the altcoin market was very undeveloped.

My three-year span happens to nicely capture the last bubble of 2013, the long bear market of 2014/15 and its subsequent recovery until today. This is great, as it allows us to observe how indexes and bitcoin perform relative to each other in each scenario.

For all of my indexed portfolio simulations below, I have rebalance them every 30 days to account for newcomers into the list and old dropouts leaving.

Bitcoin vs the top-10 ranked altcoins proportioned by marketcap

Bitcoin 4.6x vs Index 1.2x

Bitcoin outperformed the altcoin portfolio by 3.8x. Surprisingly during the 2013 bubble, alts performed even higher, but lost more ground in the bear market thereafter.

This pattern of alts having an edge in bull markets happened twice. I make out the bottom of the market was mid-May 2015. Since that time, alts recovered with a 3.8x rally (from 0.308x to 1.17x), while bitcoin recovered with a 2.7x rally (from 1.68x to 4.56x).

For those interested, here are the coins held each 30-day cycle denoting the top 10 altcoins over the three years.

Bitcoin vs the top-20 ranked altcoins by proportioned marketcap

For those who want to see more coins in the portfolio, here’s the same simulation run across the top 20 altcoins. The results are almost identical. (At this point I’ve had people say to me the numbers are wrong. Trust me, these numbers are correct).

Bitcoin 4.6x vs Index 1.2x

Bitcoin vs the 11th-20th ranked altcoins by proportioned marketcap

To shake things up, here’s a portfolio with 10 'small cap' alts ranked 11th through to 20th making up the index. The idea behind this one is to capture the coins that have more potential for growth and exiting once they graduate to the big leagues (or fade into oblivion).

These results were one of the more promising index allocations, the portfolio dropped less during the bear market and had impressive gains during bull markets, however bitcoin still won out with a 4.6x return vs 3.6x for the index, which also exhibited more volatility.

Bitcoin 4.6x vs Index 3.6x

Bitcoin vs the top-20 ranked altcoins by capped marketcap proportion

Off the back of Iconomi’s ICO raising $10.6m USD, I wanted to simulate an index similar to their CTF offering. Iconomi use a 25% cap and a further mechanism of categories to distribute the allocations.

Here’s an index with a maximum allocation of 25% for any altcoin in the basket. It will differ slightly from Iconomi’s fund, but likely their results will be a halfway point between these results and the last index simulation which uses equal allocation.

Ahem. Our first loss maker of 0.82x vs bitcoin’s 4.6x.

I may run their exact allocation through a simulation if I get enough requests (try me on Twitter).

Part of my beef with their investor whitepaper is they picked a bull market (since Jan 2016) to demonstrate their glam results, but here’s a simulation run through a bear market. It seriously underperforms against the vanilla standard indexes above, and significantly underperforms against bitcoin. Nevertheless, clients will unlikely notice this until our next bear market, which is a while away.

Bitcoin 4.6x vs Index 0.82x

Bitcoin vs the top-20 ranked altcoins allocated by equal proportion

Going with the theme of more distributed allocation, this index proportions holdings equally at the start of each 30-day cycle. This one was a disaster with an abysmal 0.64x return (a significant loss).

Bitcoin 4.6x vs Index 0.64x

Conclusions

Bitcoin is really hard to beat with index funds, maybe unbeatable with the present state of altcoins we have. Not only do they underperform bitcoin by a significant amount, but as a combined basket their day-to-day volatility is higher.

I ask myself why we don’t parallel the stock market world, where indexes are very successful and my conclusion is that we are in a world of unvetted shitcoins.

When a company goes IPO, it needs to mature for many years and must qualify under stringent Securities and Exchange Commssion (SEC) criteria. Not so in altcoin land. They are like early stage startups that IPO immediately, but any angel investor will tell you they see a 99% failure rate of early stage startups.

There will be a bunch of altcoin funds hitting the crypto investment world in this coming year. Having seen the data, I would take the index-based approaches to fund investment with a decent pinch of salt.

Trading chart image via Shutterstock

This article was previously published on the author's blog and has received minor edits. The article should not be taken as investment advice.

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.

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Original author: Willy Woo

The human cost of financial exclusion was the central focus of Money2020's first blockchain panel in 2016.

Putting a focus on applications for identity, the panel session saw BanQu CEO and co-founder Ashish Francis Thomas Gadnis discuss the impact blockchain technology solutions could have on quality of life in emerging markets, in situations such as the ongoing refugee crisis in Syria.

"Think about that family that got bombed out of Aleppo... that mother in Congo. She has land, she has a cell phone, she has an immunization record, yet she's not bankable because she doesn't have an economic identity," he said.

In this light, Gadnis discussed how blockchain could enable a way for the underbanked to "collect their own data" and leverage it to secure more equitable financial products.

Gadnis told the audience:

"In the traditional system, their land rights, their harvest production, their market data, are in excel spreadsheets. The blockchain changes that. Now, this data is a collection of disparate data sets that the world doesn't recognize. You can't do that in a centralized pyramid."

He further argued it remains difficult for those in the developing world to leverage their full range of assets and history to secure financial projects. Founded in 2015, Texas-based BanQu is said to have pilots in Somalia focused on blockchain use cases.

Gem CEO Micah Winkelspecht, however, continued this argument by extending it to the enterprise. In his remarks, he focused on healthcare, a key business area for the startup that has so far raised $12m.

"In most jurisdictions by law you own your own health data, it is not eMARS data. But in practicality, how many people take custody of their data?" Winkelspecht asked.

Elsewhere, both panel participants agreed that blockchain is "underrated" by the public in terms of understanding its value in the emerging market and its use as a vehicle for financial inclusion more broadly.

As for how much value that market could have for businesses serving this market, Gadnis suggested the number could be in the millions.

"It's a $550m opportunity people are not looking at seriously," he said.

However, one of the more interesting discussion points took place when Santander InnoVentures' Pascal Bouvier, the panel's moderator, asked whether problems with identity could be solved by a single blockchain or multiple blockchains.

Here, Winkelspecht argued that it was likely to be implemented over multiple blockchains, given that identity is, in the view of the panelists, contextual. For example, he spoke about how a "self-sovereign" identity could then receive information from other data points, but give more control over the data to the user.

"The number you announce should be public," Winkelspecht said. "This identity is mapped to me, but I can reveal which attributes I want to share. Blockchains you can create a unique number for every transactions. It has massive implications for how we do identity."

Elsewhere, Winkelspecht said he believes it's unlikely that any large institution (be it the United Nations or some other global body) could get all of the world's organizations to use a common technology for identity.

"There's a lot of work going toward developing a common protocol for this, but getting people to agree on protocols is very difficult," he said.

Money2020 image via Shutterstock

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Original author: Pete Rizzo

Ninety percent of banking executives surveyed earlier this year by professional services firm Accenture said that their institutions are investing time and money in blockchain projects.

Just 3% said that they weren’t doing so, with the last 7% telling Accenture that they were “uncertain” about their work with the tech, according to a report published today. The firm surveyed 32 bank executives in August and September.

Yet despite the high degree of interest, the survey also casts a portrait of a banking sector that is largely in a cautious test-and-see phase. Respondents expressed concern about regulation and the need for standards to help build a network effect, while also highlighting compliance and security concerns as factors holding any significant degree of investment or product development.

At the same time, respondents expressed support for shared approaches between banks in order to create what one survey-taker called “a level playing field”.

Another bank executive told Accenture in an interview:

“The lack of a universal standard could prove deleterious. There could end up being bilateral agreements and altered processes between banks, which would severely diminish any network effect.”

Respondents indicated that that applications focused on intrabank settlements and cross-border payments were the most attractive, with 44% of survey-takers highlighting the former as the most appealing use case.

Still, the report suggests that some banks are still figuring things out.

Accenture quoted one US bank executive who said his institution remains “bewildered” amidst its own internal investigation.

“We don’t even have enough information to have an opinion,” said another executive from Canada.

Image via Shutterstock

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Original author: Stan Higgins

While there’s a lot of hype over blockchain in healthcare, some who work in the industry say that the product pitches so far are little more than pipe dreams.

The comments come as blockchain technology has become increasingly touted as a solution that could streamline everything from electronic health record (EHR) management to medical insurance, reducing complexity in a system that remains frustrating for consumers and participants alike.

But new interviews suggest that, while well-meaning, entrepreneurs exploring these applications aren’t quite showcasing why the technology is a match for industry problems.

“It’s just not possible for the healthcare industry to be real time as it relates to claims,” said Dr Alyssa Hoverson Schott, a physician at Sanford Health who started this conversation at the Distributed Health conference earlier this month.

Hoverson Schott sees about 39 patients per day, inputting medical visit and procedural codes for each patient in between visits.

“There’s often not time right then to input the codes,” she said.

These codes are then sent to insurance providers who review the claim and negotiate down the bill. This negotiation process, which goes back and forth between the hospital and the insurance provider, can go on for 90 days.

The real problem? Those offering tech solutions to the industry don’t actually understand the day-to-day flow of providing healthcare, Hoverson Schott argued.

She told CoinDesk:

“A lot of the time, these entrepreneurs talk about things that aren’t actually doable. I don’t think they understand how busy our day is and how the system underneath actually works.”

That’s not to say she doesn’t believe blockchain can solve problems in healthcare, rather she questions whether startups can succeed without collaborating with the traditional industry. Her interest is also personal, as her husband, a senior business analyst at Experian, has developed an interest in the technology.

Despite the concerns of industry incumbents, however, her story shows how blockchain has become more than a business solution, but a social phenomenon that continues to spread.

Healthcare concerns

This expansion of has led to interest from other healthcare veterans like Dr Jonathan Holt, a once practicing physician that now focuses on his two startups: SeqTech Diagnostics (which carries out genetic testing on food) and TranSendX, a blockchain for healthcare interoperability aimed to bring patients more control of their medical records.

Yet, Holt sees an opportunity to parlay his expertise into a new venture. He argued that healthcare providers, like financial institutions, have incentives for keeping patient information private and in their control.

And Holt isn’t alone in his belief that healthcare providers will continue to be cautious about new systems for housing their data, as they can incur huge fines for exposing patient health records – fines big enough to bankrupt some healthcare institutions.

During the conference, tech entrepreneurs were met with this kind of skepticism when presenting such ideas.

Yet another reason healthcare providers are hesitant about blockchain technology is because they’ve put a significant amount of time and money into their existing architecture. Just as the financial services industry likely won’t rip and strip away legacy systems completely, healthcare providers would also rather see updates instead of overhauls.

Adding to this, most hospitals are now transitioning to electronic health record (EHR) software.

As part of the American Recovery and Reinvestment Act, the government mandated that healthcare providers show “meaningful use” of EHR by the beginning of 2014.

“Other innovation screeches to a halt,” said Holt about the transition from paper to digital, adding:

“Blockchain as a bleeding-edge technology that’s only three years old is going to take some time to implement.”

Provenance’s potential

Instead of focusing on EHRs and insurance claims, Michael Gucci, a practicing emergency room physician and founder of Bitcoin Fortress Ventures, thinks blockchain entrepreneurs would have a better chance disrupting medication provenance first.

While counterfeit medication isn’t as much of a problem in the US, in developing countries it’s a huge dilemma, he said. The issue costs the industry hundreds of billions of dollars per year and results in thousands of deaths annually, according to a 2014 American Health and Drug Benefits report.

And there are already companies working towards this practical solution, he said, pointing to Block Verify out of the UK. The company has been working on several provenance pilots that allow medical professionals and consumers to scan a QR-code on a bottle of pills to ping the blockchain to verify the integrity.

In terms of streamlining the insurance claims process and the transfer of EHRs between providers, that’s probably 10 to 15 years off, Gucci said.

“Hospitals aren’t going to implement any huge changes right away. It’s going to happen in small steps,” he said.

Baby steps

This aligns with Holt’s thoughts that blockchain entrepreneurs should develop systems of data integrity and provenance, but for simpler problems.

One example is Saavha, a blockchain startup verifying the integrity of healthcare scheduling. This is particularly interesting in light of the Veterans’ Affairs (VA) scandal of 2014 and the VA’s continuing problems with falsified waiting lists.

It’s also a problem one US Congressman’s proposal argues distributed ledger technology could solve.

The VA even has a more stringent regulatory burden than most other hospitals, said Holt. Much of its data has to be encrypted on a hard drive under lock and key in a cage with 24/7 video surveillance, he said. And yet, the information was still manipulated.

“The attention is on these big issues because everyone loves the sexiness of solving a big problem,” said Mathew Rose, a practicing junior doctor in Ireland and co-founder at Saavha. “But if you think throughout history, anything that was an immense problem, it was easier to solve the little problems inside that big problem.”

Look at the development of medicine, for example. Part of the reason medical science has advanced so far is because every medical researcher works on a part of the problem, Rose said. In cancer research, some doctors focus on practices for removing tumors, while others focus on inhibiting blood supply, while still others investigate what role proteins play.

In Saavha’s implementation, a hash of the appointment data is stored on the blockchain so it can be proven that the data wasn’t changed retrospectively. The problem also circumvents one of the core criticisms about blockchains – that they are inherently slow databases that aren’t good at storing of large amounts of data,.

By focusing on data integrity, EHRs can store a hash on a blockchain to prove the validity of information stored elsewhere, likely in centralized repositories that exist today.

Sweet spot

There is, however, an argument to be made that these centralized databases could benefit from other less immediately viable applications of blockchain.

Adrian Gropper, CTO at the non-profit group Patient Privacy Rights, thinks these centralized stores of data need to be scaled down immensely. Today, there are centralized healthcare databases containing between 5 million and 10 million patients, he said.

“We’ve created a 10 million patient honeypot [for fraudsters] where something on the order of 50,000 people on staff at these hospitals have access to those records. And these systems are totally opaque to the user,” Gropper said.

This already is a big problem for the industry. Last year, fraudsters pulled off the largest healthcare hack in history on Anthem, exposing more than 78 million customers. And in March, MedStar Systems, a clinical information system of 10 hospitals was hacked and had to take its system offline.

This is a situation that’s likely to continue, since some estimates show healthcare data is almost 100 times more valuable than stolen credit card information.

“The only hope for actually managing this kind of personal-level information is to distribute it back out to a diverse group of holders, and blockchain is going to play a central role in this,” said Gropper, who is building a patient-centered health record platform on blockchain technology called HIE of One.

In his mind, the blockchain acts as storage for identity data, a hash of a timestamped document and the payment record.

Further, he says centralized healthcare databases should be smaller, housing only the records only one doctor or maybe one community. Transfer of data is in the hands of patients, with HIE of One using User-Managed Access (UMA) as its access control standard.

Long road ahead

Lofty ambitions aside, the healthcare industry looks likely to take its time in experimenting and implementing the technology.

In place of a large disruption is likely to be a cautious, piecemeal approach that might arguably be the safer, preferable option for the aspects of healthcare that may adopt blockchain applications over time.

Rose argued that, in this light, technology solutions also need to take a backseat to patient security, which he said remains the industry’s core mandate.

He explained:

“The healthcare industry likes technology, but it needs to be safe and secure. No one wants their grandmother put at risk because a doctor decided to adopt a technology that wasn’t proven.”

Doctor image via Shutterstock

Blockchain TechnologyHealthcare

Original author: Bailey Reutzel