Credit Suisse, Citi and HSBC are among seven financial firms to participate in a data management trial announced today and conducted with support from blockchain firms Axoni and R3CEV.

Featuring buy-side and sell-side firms, the multi-month effort envisioned how a distributed ledger prototype could be built to enhance risk management, cost and efficiency issues when managing financial reference data. Also involved was the Securities Industry and Financial Markets Association (SIFMA), a trade group representing US securities firms.

According to a release, the prototype used Axoni Core, the startup’s proprietary distributed ledger software to simulate the collaborative management of reference data used in corporate bond issuance.

The companies said:

"The technology enabled participants to interact with reference data after issuance, with any proposed changes requiring validation by the underwriter to ensure the ledger provided a single, immutable record of all data related to the bond."

According to the companies involved, the project was able to demonstrate how regulators and network participants can use the technology to see which parties on a ledger have created, issued and proposed amendments to a data record.

In statements, David Rutter, CEO of R3, and Emmanuel Aido, Credit Suisse's blockchain and distributed ledger lead, spoke to the benefits that this new approach to data management could bring to the financial industry.

"Quality of data has become a crucial issue for financial institutions in today’s markets. Unfortunately, their middle and back offices rely on legacy systems and processes – often manual – to manage and repair unclear, inaccurate reference data," Rutter said.

Data center image via Shutterstock

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A federal judge in New York has ruled that bitcoin constitutes a form of money.

The ruling comes from the ongoing case involving the now-defunct Florida bitcoin exchange Coin.mx and one of its former operators, Anthony Murgio.

Murgio, who was indicted on alleged money laundering charges in July of last year, had sought to dismiss two of the charges against him in part by arguing that bitcoins don't count as "funds" in the context of US law.

According to Reuters, Judge Alison Nathan of the Southern District Court of New York rejected that bid, writing that bitcoin is money by virtue of how it is used.

Nathan wrote in her ruling:

"Bitcoins are funds within the plain meaning of that term. Bitcoins can be accepted as a payment for goods and services or bought directly from an exchange with a bank account. They therefore function as pecuniary resources and are used as a medium of exchange and a means of payment."

The ruling comes on the heels of a court decision in Florida in which a Miami judge ruled that, according to state statutes, bitcoin doesn’t qualify as a form of money. That decision sparked debate amongst observers and has sparked renewed effort in the state legislature to develop regulations around the digital currency.

The Coin.mx case is connected to a broader investigation by the US government into an alleged cybercrime ring tied to a series of hacks on major companies and financial institutions, including Wall Street giant JPMorgan Chase. According to prosecutors, Coin.mx was used as a conduit for laundering proceeds from the purported operation.

Attorney Brian Klein, who represents Murgio in the case, told CoinDesk that his client plans to continue fighting the charges.

"The defense obviously disagrees with the Court’s denial of the motion to dismiss," said Klein. "Anthony Murgio maintains his innocence and looks forward to clearing his name at his upcoming trial."

Image via Shutterstock

Coin.mxcourt casesNew York

For better (and more often) worse, the price of bitcoin was all but inseparable from one of its major exchanges in August.

Bitcoin prices fell close to 20% to start the month, a steep decline that coincided with the hack of Hong Kong-based bitcoin exchange Bitfinex, one of the most heavily traded on the network globally.

As it would come to light, the security breach resulted in the loss of roughly 120,000 BTC ($72m). The event would have a wide-ranging impact on the market, depressing bitcoin prices as Bitfinex shut down for more than a week and concerns were raised about basic practices used to secure the digital currency.

Prices were quick to rebound, however, on news of improvements at the exchange.

After reopening, Bitfinex was able to attract significant USD/BTC trading volume, capturing 20% of this market during the week activity resumed. While the exchange's trading activity started out at a modest pace, reaching 31,000 and 33,000 BTC on 1st and 2nd August, this activity was far lower following the hack.

For the remainder of the month, daily volume failed to reach 10,000 BTC during all but one session. As a result, Bitfinex trading volume averaged only 5,666 BTC per day in August, more than 75% lower than the 24,199 BTC daily volume the exchange averaged during the six months prior, Bitcoinity data reveals.

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As analysts described Bitfinex as "the most liquid USD exchange pre-hack", the event served to make the market even more illiquid, making it vulnerable even to the actions of single trades or traders.

While market sentiment remained bullish in August, it took a hit compared to recent months. Data provided by bitcoin trading platform Whaleclub revealed that during August, 71% of positions were long, compared to 82% in June and 85% in July.

However, it is worth noting that while August's sentiment fell below that of June and July, it was roughly on par with that of April and May, when the market was 71% and 72% long, respectively, additional Whaleclub figures show.

Bitfinex survives

The hack continued to generate substantial visibility for the month, as analysts voiced concerns about whether Bitfinex would be able to survive. Many drew comparisons to Mt Gox, the Tokyo-based bitcoin exchange that collapsed in 2014.

So far, Bitfinex has been able to avoid a shut down, however, it continues to rebuild its reputation and attempt to reimburse investors.

Those efforts began on 7th August when it decided to generalize the losses associated with the hack across all user accounts, giving investors one Bitfinex token for every $1 lost.

These tokens carried the label BFX and could either be redeemed by Bitfinex or exchanged for equity in iFinex Inc, Bitfinex's parent company. Market participants also had the option of trading these tokens in a secondary market.

It wouldn't be until 1st September that the exchange reimbursed accountholders by purchasing more than 1% of outstanding tokens, a move that many analysts viewed as a positive for the market. Bitfinex bought these digital assets for $1 apiece, which was approximately twice their market value at the time.

Markets react

One month later, analysts provided a mixed reaction to Bitfinex's approach to the hack, with some supplying criticism and others offering praise.

Arthur Hayes, co-founder and CEO of leveraged bitcoin trading platform BitMEX, voiced the concerns of those unhappy with the exchange’s decision to generalize the loss. Overall, he said, it remains a difficult subject.

"The community is not pleased that the largest USD exchange was hacked and a 36% haircut was imposed," he told CoinDesk. "The two biggest issues are the lack of transparency on how the haircut was calculated, and the fact that Bitfinex still doesn't know the attack vector."

Huobi co-founder Du Jun described the haircut as "very arbitrary and unreasonable", and others agreed.

Whaleclub's Petar Zivkovkski portrayed this decision similarly, explaining it as a means by which Bitfinex could transfer risk to its customers by issuing "previously valueless tokens" that could potentially be manipulated by the exchange.

One analyst who offered some praise for Bitfinex's response to the hack was Kong Gao, overseas marketing manager for bitcoin trader Richfund.

In contrast to others, Gao said that he believes the approach helped the exchange avoid a potential lawsuit and continued shut down.

"We think Bitfinex has made all the right moves to recover from their loss," he said.

Gao indicated that some Chinese exchange users were exploring a lawsuit against the exchange in Hong Kong prior to its decision to socialize the loss.

New opportunities

Gao also emphasized that while many have cast the generalized loss in a negative light, Bitfinex's decision to issue tokens has given its customers the opportunity to be stakeholders in the exchange by retaining these digital assets.

Market participants who did not receive these tokens directly from Bitfinex can also become stakeholders by purchasing them on the secondary market, he said.

The comments showcase the belief that by issuing these tokens, Bitfinex might help create greater regulatory certainty by motivating global lawmakers to take a stance on crypto assets with both debt and equity features, a view put forth by Hayes.

The BFX token could also enjoy upside going forward, noted Gao. He emphasized that the token has reached $0.50, and predicted the digital asset could reach between $0.70 and $0.80 "in the short run".

In spite of this optimistic assessment (and the perception of many that Bitfinex did a good job of handling the hack), the bitcoin community may find overcoming the stigma of the Bitfinex hack to be a struggle.

The digital currency still faces uncertainty surrounding its block capacity challenges, a matter that has been looming for some time.

The "stalemate" between "core developers and miners has left many with a sour taste," said Zivkovkski.

Bitcoin remains resilient

In spite of these difficulties, market participants should keep in mind that bitcoin has survived many challenges before.

Bitcoin has enjoyed rising adoption over time, as a growing number of companies have expressed they will accept the digital currency as payment. While developers have yet to create long-term solutions to the block capacity dilemma, they have made progress on more short-term solutions.

Chris Burniske, blockchain products lead for investment manager ARK Invest, emphasized that the bitcoin's blockchain retained its security and functionality in spite of the Bitfinex hack.

"A good analogy is that bitcoin and its blockchain are like a computer’s operating system, while Bitfinex is like a web browser. Just because the web browser gets hacked and taken down doesn’t mean the underlying operating system had associated security vulnerabilities," he explained.

It is important for the public to understand the difference, Burniske noted, as the security breach could otherwise create a darker cloud that could hamper further adoption of bitcoin.

Crutches image via Shutterstock

BitfinexPrices

Spanish banking giant Santander is working on a project that explores how it could digitize customer cash using the public ethereum blockchain.

Revealed today during a panel talk at Devcon2 by Ether.camp founder and ethereum Java client developer Roman Mandeleil, the news was confirmed by representatives of Santander. In statements, Santander said its goal is to open up its bank-issued funds to a community of innovators as a way of tapping additional efficiencies.

Given the recent deluge of proofs-of-concepts and consortium announcements, Santander's move to potentially issue digital cash on a live public blockchain emerges as one of the more unique projects globally. Running for more than a year, the ethereum network has a market cap of more than $1bn and nearly 40,000 in daily transactions.

In interview, Mandeleil explained that the Santander project envisions how the bank’s customers could convert money from their real bank accounts into a 'tokenized' online currency called 'Cash ETH' that would be redeemable for paper currency.

Mandeleil told CoinDesk:

"These tokens are backed by real money in Santander. At any moment you can get them back and get the dollars."

In a demonstration, Mandeleil showed how a fictional customer could use the prototype to create digital money for use at online merchants and accessible with a mnemonic passcode called a brain wallet. (Despite past issues with the concept, he called this version "statistically hard to break").

Santander representatives indicated that the bank is now seeking to work with Ether.camp on engaging other banking partners in the project. The two partners are also looking to run hackathons that would focus on developing use cases around micropayments.

In essence, the project aims to envision a way for banks to open up their basic bank account offerings to new ideas and transactional services. Further, Mandeleil said the project is part of his 10-person startup's vision that focuses more on using blockchain technologies to achieve incremental benefits for banks and consumers.

"It's more like evolution, not revolution," he said. Still, he emphasized that the trial, should it go live, would mark a "huge leap" by establishing a connection between a publicly traded financial firm and and a public blockchain.

"You can start to build more and more stuff and say to the regulators 'It's not so scary,'" he continued.

Elsewhere, in his talk, Mandeleil discussed Ether.camp's work with blockchain startup firms including Gemini and Rootstock.

Mass media

Mandeleil showcased a system whereby a Santander customer would have three new options to coincide with their traditional bank account – tokenize, transfer or refund.

Should the user elect to 'tokenize' their funds, the system is set up to allow for payments of as low as $0.01, though small charges may add to Santander’s earnings depending on how the user chooses to allocate the funds. In the example, $350 in funds were withdraw to a test version of the ethereum blockchain, with $1 going toward gas payments, which are needed as payment to execute transactions on the network.

By paying the gas upfront, the user is allotted a certain pre-set number of transactions they can execute, though this figure can be increased with additional payment. Mandeleil sees the digital Santander dollars as a viable alternative to PayPal.

"It's not something that users will not do to have the agility of money. You click on the payment, then you put in the private key and you have the balance and the reliable transactions," he said.

To offer a better view on the project, Mandeleil walked CoinDesk through a version of the prototype in which a user tokenized funds for use as payment for an article on a demo version of The New York Times website.

Users could then exchange the digital money with other users, though Mandeleil said these funds would be redeemable with Santander.

In this light, the partnership also offers the bank a new avenue by which to add to its accountholder base.

Questions ahead

According to Mandeleil, the project first began seven months ago, when Santander approached the Ether.camp team with the idea for the effort, but more work remains.

Should Santander succeed in receiving regulatory approval to ultimately move forward, it will need to contend with the challenges of potential growth.

For example, Mandeleil said he is speaking with Santander about the issues that could arise from a broad number of banks all issuing their own versions of digital cash, which might lead to interoperability and settlement issues.

Mandeleil, though, sees the current blockchain market as already providing relevant examples for how workarounds to this could be achieved. For instance, he mentioned the available cryptocurrency conversion tools as one service that could offer a potential solution should the project progress.

Going forward, Mandeleil and Santander said the partners are seeking to engage more banks in the project, which they compared to the Universal Settlement Coin project spearheaded by UBS and also involving Santander.

Representatives of Santander said that additional legal work needs to be done before moving forward, and that it is currently exploring whether it needs additional licensure.

Images via Pete Rizzo for CoinDesk; Santander image credit: chrisdorney / Shutterstock.com

Banco SantanderBankingDevcon2Ether.campEthereum

The UK’s central bank said last week that it wants its next-generation settlement system to be blockchain-compatible.

A consultation paper published last week outlined the major characteristics of what the Bank of England’s planned real-time settlement system, known as the Real-Time Gross Settlement (RTGS) service, should constitute.

According to the Bank of England, the RTGS system essentially forms the foundation of what it does as a central bank. The bank began the process of looking at how the system could be augmented, upgraded or outright replaced earlier this year. Among the elements being considered: compatibility with private sector blockchains “if/when they achieve critical mass”.

The paper’s authors said that the deployment of new kinds of financial technologies mean that any real-time payment system created by the central bank will need to be able to handle some kind of integration.

The Bank of England has been exploring fintech applications are part of a new project accelerator, focusing in part on the prospect of a central bank-issued digital currency.

The Bank of England said it sees a role for the real-time payment system in providing those fintech applications with a reliable and fast-moving source of information.

The paper states:

"To operate at their most efficient levels, these technologies require rich data feeds, high availability and seamless messaging. The concept of the distributed ledger, though still in its infancy, is a potentially much more radical innovation, creating new ways for firms to exchange value without relying on central infrastructure."

Promises aside, the paper’s authors go on to note that the technology most likely won’t form the backbone of any new kind of payment system deployed by the Bank of England.

"The resilience characteristics of the distributed ledger in particular are potentially highly attractive from a financial stability perspective," they note. "It is however unlikely that this technology will prove sufficiently mature to form the core of the next generation of RTGS itself."

Bank of Englandcentral banks

Brian Behlendorf has made a living out of helping others play well together — and his work with blockchain group Hyperledger builds on this expertise.

But before that can happen with this latest open-source project, the founder of the Apache Software Foundation set out to make sure that the more than 80 existing members of Hyperledger know what they've signed up for.

In a blog post he published last week entitled "Meet Hyperledger: An 'Umbrella,' for Open Source Blockchain & Smart Contract Technologies," Behlendorf laid out in explicit terms Hyperledger's mission and the services it intends to provide.

In conversation, Behlendorf explained that he intended the post to be more than just a recruiting tool for new members, but a line in the sand to clearly delineate where Hyperledger is going.

Behlendorf told CoinDesk:

"It becomes a Litmus test for those who can see that they like the vision, or those who want to peel away."

First announced in December 2015, Hyperledger is a consortium-style working group committed to building better blockchain solutions for businesses.

A collection of industry veterans like the DTCC and startups like Digital Asset Holdings, Hyperledger is a pact that finds them laying down their differences to help build an ecosystem with the potential to streamline services and save money for members and customers.

In the post, Behlendorf described how Hyperledger might "forge common ground" and accelerate adoption by reducing "needlessly duplicated" processes.

But he added:

"Perhaps most importantly, we can directly address what many have observed as a major challenge with the existing open source blockchain efforts – tremendous levels of tribalism amongst developers."

Under my umbrella

What Behlendorf set out to do was create a new way for Hyperledger to envision itself. Instead of an interwoven fabric of codebases and companies, he foresees an overarching, but separate group of collaborators.

In preparation for the "Umbrella" article, Behledorf said he interviewed developers and other employees of member companies that might otherwise form tribal connections.

What he learned was that even with companies that were heavily committed to the IBM-led fabric project within Hyperledger or the Intel-led Sawtooth Lake, the participants were eager to onboard new partners.

"Once I started asking questions I found there was much convergence," he said.

To help codify that convergence, Hyperledger last month elected a new technical steering committee that will oversee member contributions, and manage the group's trajectory. One of the group's first lines of business was to agree on three defining characteristics of Hyperledger.

According to Behlendorf’s post, the technical steering committee now defines Hyperledger as a group of developers who are responsible for a set of "artifacts" (including one or more Git repositories); a bug tracking database and a wiki; and a dedicated space within Hyperledger to describe how each individual project within the organization relates to the community at large.

Staying dry

When Behlendorf was hired in May, he set out to bring clarity to who would contribute to the underlying codebase and make it easier to onboard new members. Since then, the membership has more than doubled, and now he's focused on applying lessons he's learned managing ostensible competitors at the Apache Foundation.

With more than 300 "top-level" software projects, the foundation's members balance having a distinct charter, developer community, roadmap and development processes, with using the same collaboration tools, the intellectual property framework and process for reporting to the board of directors.

In August, Hyperledger added 17 new members to its consortium, including Samsung SDS, Quickbooks developer Intuit and heavy machinery manufacturer Sany, bringing the total to 81 members. Plans for Hyperledger's first block explorer were also revealed last month, an effort co-created by the DTCC, IBM and Intel.

Going forward, Behlendorf made clear the path to collaboration between Hyperledger members:

"They either merge together or they find a way to usefully differentiate. Sometimes that's a hard message to get across when they see it as a horse race."

Umbrella image via Shutterstock

Hyperledger