It's no secret that cryptocurrencies have undergone a dramatic rebrand.

No longer perceived as a detriment to banks and governments, cryptocurrencies are now being hailed as "digital assets". As more and more financial intuitions become comfortable with the blockchain technology on which they are based, they are openly discussing a future when the financial tools are just another part of the industry.

Now, a dozen banks have announced the completion of an initiative during which they tested a potential application of a digital asset. Revealed today, 12 member banks of blockchain consortium R3CEV have completed a series of trials using distributed ledger startup Ripple's native asset, XRP.

The trials, conducted in an environment set up at R3's lab, were designed to show how banks could save money and create new revenue streams by using XRP to provide liquidity to their many bank accounts around the world.

Ripple head of global sales Nilesh Dusane said the effort revealed not only how banks could minimize delays getting funds to their customers, but save money by harnessing the technology.

Dusane told CoinDesk:

"Everything comes down to return on investment. This project was aimed to show the ROI of reducing costs around liquidity by around 60%."

Playing the 'nostro' margins

In short, instead of making banks redundant, this implementation was designed to show how the use of cryptocurrency could potentially make them money.

That's because for banks to do business around the world, they open accounts called nostro accounts that must be filled with local currency. Ripple argues this results in a waste of capital that the trials were designed to showcase.

First, Ripple contends that value is lost because currency that must be held in the account is capital that could be invested elsewhere – and adding liquidity to these accounts costs money. Second, if a customer needs to do business with the bank for an amount that exceeds what is in the nostro account, days-long delays can result.

Instead, the trials were intended to demonstrate that the Ripple network could enable banks to make markets for fiat currencies using XRP and then complete authenticated payments without multiple nostro accounts.

Throughout the tests, participating banks including Barclays, CIBC, Intesa Sanpaolo, the Royal Bank of Canada and Santander were given control of their own wallets and the ability to move funds from one virtual location to another.

No actual cross-border payments occurred, according to Dusane.

"Because of our real-time settlement, banks can on demand, buy euros [or another currency] in chunks so their capital is not tied up," he added. "If there are instances when their needs are more than they have, they can make those decisions instantly."

It's not a blockchain

Still, the ability for Ripple's distributed ledger to operate without a currency has proved appealing to an increasing number of financial institutions that are otherwise wary of the stigma surrounding bitcoin.

Such sentiment led Ripple to launch a report earlier this year which aimed to showcase the cost savings that using a digital currency with a distributed ledger could achieve.

Released in February, Ripple argued that its tech could provide banks with a 33% savings on international payments. Yet, this figure rose to 42% when digital currencies were used to facilitate the trades.

Indeed, the increasing use of Ripple's technology without a digital currency led to market confusion about the company and its goals, a fact acknowledged by CEO Chris Larsen in a March interview with CoinDesk.

"We could do a better job of communicating that XRP is essential to the Internet of Value," Larsen said at the time.

And there are reasons Ripple may have shied away from this argument.

Like all cryptocurrencies, Ripple’s price has undergone dramatic fluctuations since it’s launch. At one point in 2014, the value of XRP approached $800m before settling down to its current market cap of about $300m, where it has been more or less steady since May 2015.

XRP is currently valued at $0.008 with 35.4bn tokens held by the public and 64.5bn tokens held by Ripple. When Ripple first launched, the company created all $100bn worth of the currency and dispersed the funds to over 25,000 beta users.

Overcoming the stigma

That's not to say there weren't regulatory considerations needed for the trial.

For example, R3 co-founder and COO Todd McDonald said the tests were designed in consideration of consortium members' own regulatory needs. With bank participants from places as diverse as Italy, Australia, Canada and Scotland, regulatory requirements were diverse, forcing regional solutions in spite of the consortium model.

"At the end of the day payments and regulation is local and those are the questions that need to be answered," said McDonald. "Local regulators need to understand the value proposition."

However, the cryptocurrency environment today is also more established from a regulatory perspective than it was during the early days of bitcoin, a point put forward by Dusane.

"There is globally a lot more clarity from a regulatory standpoint about how digital assets like XRP should be treated," Dusane said. "Banks can now for sure understand what they can do with a digital asset like XRP."

But there is another reason banks are opening up to cryptocurrency, according to Trond Undheim, a former senior lecturer of MIT Sloan School of Management, who earlier this year wrote an article about why banks "fear bitcoin".

Now the founder of knowledge discovery platform Yegii, Undheim told CoinDesk that he believes banks were originally hesitant because they weren't sure how such experiments might impact investor confidence, but that the fear of missing out has taken over.

Undheim concluded:

"Now, it is almost the opposite. Disruption and innovation is moving so fast that if they don't get on board, they realize they will be perceived as losing their mojo. They also find they still have a role to play in the emerging financial system post the FinTech revolution."

XRP image via Ripple

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

R3CEVRipple

Five major European insurance and reinsurance companies have partnered on a new blockchain initiative, seeking a potential new path for delivering faster and secure client services.

The project, dubbed the Blockchain Insurance Industry Initiative, or B3i, is aimed at providing a meeting ground for the companies to exchange ideas, test use cases and pursue concepts that could ultimately reshape how they deliver insurance services. The firms taking part are Allianz, Aegon, Munich Re, Swiss Re and Zurich, constituting some of the biggest companies of their kind in the region.

The group is the latest enterprise-driven consortium to emerge, following in the footsteps of initiatives like R3 and the Post-Trade Distributed Ledger Group.

Those backing the B3i effort say that it could ultimately lead to new ways of doing business. Mark Bloom, Aegon’s chief technology officer, said in a statement:

“We want to be at the heart of these developments and see Blockchain as one of those potential catalysts for change. By actively creating partnerships and making strategic investments we can build smarter solutions together with our clients."

For Allianz – which has explored applications for the exchange of catastrophe bonds and has worked with startups in the space through its fintech accelerator – the technology offers a means to increase transparency for its customers.

“This initiative, enabling alternative operating models based on the Blockchain technology, can help us increase transparency and efficiency and deliver a better experience to our customer,” Allianz Group COO Christof Mascher said in a statement.

The companies involved said they hope other firms in the insurance and reinsurance industries join the initiative. The goal, according to statements, is to advance use cases “across the entire insurance value chain”.

Image via Shutterstock

AegonAllianzInsuranceMunich RereinsuranceSwiss ReZurich

Mitsubishi UFJ Financial Group (MUFG), the parent company of the Bank of Tokyo-Mitsubishi UFJ, has embarked on a new digital currency trial through one of its subsidiaries.

MUFG is conducting the test through a subsidiary called Kabu.com Securities Co, at which employees will be awarded a blockchain-based currency called “OOIRI” in return for maintaining good health. Details posted on the Kabu.com website indicate that the project involves representatives from both that firm as well as MUFG’s innovation unit.

The OOIRI currency is said to be tied to the value of the yen and will available for spending at local businesses through an app called Z-Wallet, developed by an Israeli startup called Zerobillbank. Further, health data will be drawn in part through the use of geolocational software that is integrated in the wallet.

MUFG, primarily through the Bank of Tokyo-Mitsubishi UFJ, has pursued blockchain applications in the areas of financial management and digital cash. MUFG is also an investor in San Francisco-based digital asset exchange Coinbase.

If successful, the Bank of Tokyo-Mitsubishi UFJ will reportedly look to introduce a system similar to the OOIRI reward currency.

Image via Shutterstock

health and fitnessMUFG

Two bitcoin startup executives have joined the leadership team for Uphold, the digital money platform.

Bitnet CEO and co-founder John McDonnell and chief data architect Jiri Novak will become part of a new offering called Uphold Merchant Services, which will aim to provide payment and financing services to businesses that use the Uphold platform. Bitnet was acquired as part of the deal.

The company, formerly known as Bitreserve, was founded by CNET founder Halsey Minor and formally launched in late 2014. The platform later rebranded as Uphold.

McDonnell and Novak join the startup months after Japanese e-commerce firm Rakuten acquired Bitnet's assets. Former Bitnet employees Fergal Downey and Stephen McNamara would go on to become part of a new blockchain lab founded by Rakuten, using the company's assets to kickstart that effort.

McDonnell, who will serve as CEO of Uphold Merchant Services, said in a statement:

“Uphold is uniquely positioned as the first ‘cloud-based’ financial services platform that leverages the operating efficiencies of blockchain technology while providing access to the legacy bank and payment networks."

The announcement comes two years after Bitnet announced that it had raised $14.5m in a Series A funding round. That round, led by Highland Capital Partners, notably included participation from Rakuten, and set the stage for the e-commerce company's eventual acceptance of bitcoin payments.

Image via Shutterstock

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

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Between a block and a hard place?

While ethereum's latest hard fork went according to plan yesterday (so far without any drastic side effects), attacks on its blockchain quickly began anew.

In this case, ethereum executed a hard fork on Tuesday in a bid to stop denial of service (DoS) attacks that have been ongoing for about a month. Following weeks of transaction and block creation issues, the platform's developers determined that the best way to fix the issue was to reprice certain network functions, and users and miners responded by quickly upgrading their software (a process known as a 'hard fork'). 

The stable transition to a new transaction record was what many in ethereum team arguably had expected, since the fork was a technical change (unlike the contentious move to rewrite the network's ledger after the hack of The DAO).

However, the attacker appears to have switched gears, taking advantage of security holes that weren't expected to be patched until later.

Developers are currently working on new fixes, according to Ethereum Foundation IT consultant Hudson Jameson, who told CoinDesk:

"We are working on client updates to help mitigate the issues somewhat until the second hard fork happens."

Not yet thwarted

But this new wave of attacks has led to new problems, though they were (to an extent) forseen.

From the start, ethereum developers had planned two hard forks, as the attacker had been taking advantage of a variety of attack vectors. The first aimed to increase the price of certain opcodes that the attacker was successfully abusing to make it harder for him or her to slow down the network. The second hard fork was expected to remove empty accounts the attacker created to bloat the blockchain.

Still, with the second fork yet to be executed, short-term problems have emerged.

In response to the most recent attacks, the Ethereum Foundation issued a recommendation to miners, advising them to lower the gas limit (thus limiting how many transactions can be carried out) before a second fork. At the time of press, cryptocurrency exchange ShapeShift has also paused the trading of ether (again).

Ethereum creator Vitalik Buterin suggested he believes the two attacks can be thwarted with the second technical upgrade. "A successful hard fork round two would resolve this for the short and medium term as it would make the state possible to put in memory again," he explained.

The problem, Jameson said, is that the blockchain state has grown too big, and the attacker is taking advantage of that.

"The [second] hard fork will shrink the size of the blockchain state and disallow a specific attack that is being utilized to activate the empty accounts over and over again," he explained.

One less severe attack, which increases processing times to an estimated one to three seconds, takes advantage of another mispriced opcode.

Johnson and Buterin claimed that the plan is to raise the price in the second hard fork.

Conditions ahead

Even after the second hard fork, however, it's unclear what will happen or whether it will prevent attackers from finding other vectors.

Around these attacks there have been wider conversations about how (and whether) ethereum can stop these sorts of attacks in the short term or long term.

Many argue that the attacks are an inevitable result of the way ethereum is designed. (More on-platform capabilities mean that ethereum has a larger attack surface than other blockchain networks).

The new attacks prompted BitGo engineer Jameson Lopp to wonder "how many hard forks it will take to plug all the holes".

And some observers are questioning whether developers are taking enough care before making changes to the network.

"The real story behind this attack and the hardforks is that they are not really testing well," said IBM blockchain leader of the Latin American division Martin Hagelstrom. "Even when the devs talk about these issues it does not sound like they are aware that their network has $1bn in it."

But others remain optimistic about ethereum's future, especially since there haven't appeared to be any serious problems so far as a result of the fork.

Even if the attacker isn't thwarted this time, to some this only furthers idea that hard forks are an option for combating them, and that each hurdle that ethereum jumps brings it closer to a working platform.

Marco Streng, CEO of hosted ethereum mining firm, Genesis Mining, indicated he remains impressed by the network's response to the pressures it has faced in recent months.

Streng concluded:

"It sets a clear sign ethereum will go out of this stronger than before."

Spinning top image via Shutterstock

EthereumSecuritySmart Contracts

CoinDesk is thrilled to welcome back Deloitte as a title sponsor for Consensus 2017, our third annual blockchain technology summit.

Deloitte is one of the world's largest professional services firms, working with 90% of the largest financial institutions across its audit, tax, consulting and advisory businesses. Its blockchain team has invested substantial time and energy in evaluating the potential for this new technology to introduce new opportunities for its clients, and those investments will be on full display again next spring in New York City.

Eric Piscini, principal at Deloitte, said:

"After the fantastic success we had last year at Consensus, it was a very easy decision for us to return as title sponsor in 2017, and we even increased our investment. While we saw significant traction in 2016 to 'make blockchain real' across industries, we believe 2017 will be the year of large scale adoption and implementations. We are looking forward to meeting the rest of the blockchain ecosystem at Consensus 2017 and engaging with our clients to transform their businesses."

Deloitte was one of the earliest institutions to investigate the potential of blockchain technology in 2014, when it disclosed it was working on several internal applications including automated client auditing, financial reconciliation, land registry and loyalty points programs.

Since then, Deloitte has continued to lead the growing community of enterprises exploring blockchain applications, and its internal blockchain and cryptocurrency community now boasts 750 members in more than 40 countries. This year alone, blockchain pilots have been tested at more than 100 enterprise technology companies, global banks, exchanges and insurance companies — growth which shows no signs of abating in 2017.

"It was a pleasure to work with Deloitte on Consensus 2016, and we couldn't be happier to work with them again this year on the 2017 summit," said CoinDesk Managing Director Ryan Selkis.

"The work that Deloitte does every single day in educating its clients on the potential of this new technology aligns perfectly with the education we provide our readers and event attendees."

Consensus 2016 included representatives from nearly all of the top global financial institutions, regulatory bodies and technology giants, as well as founders from startups who collectively represented 95% of the total venture capital invested to date in the industry, such as 21, Blockstream, Circle, Coinbase, R3 and Ripple.

CoinDesk's 2017 event is anticipated to boast more than 2,000 leaders from blockchain industry startups, financial institutions and developer communities, and it will include two-and-a-half days of in-depth discussions and workshops.

Sessions at the conference will be divided into ‘Business’ and ‘Technical & Policy’ tracks which highlight the opportunities and challenges facing the blockchain community regarding the development of applications in regulated areas like global payments, smart contracts, clearing and settlement and identity and device management.

A supplemental "Implementation Workshops" track is also a planned addition for 2017.

Deloitte leads the pack of early return sponsors for Consensus 2017. Others include Davis Polk, Genesis Trading, Goodwin Proctor, Pantera Capital, Ripple and Silvergate Bank.

Image Credit: Nessluop / Shutterstock.com

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