William Mougayar is the author of "The Business Blockchain" and a board advisor to the Ethereum Foundation, the non-profit that oversees the development of one of two blockchains seeking to popularize the distributed computing platform.

In this opinion piece, Mougayar offers his thoughts on why global governments should be – and increasingly are – embracing blockchain.

As government services are one of the most obvious and immediate application areas for the blockchain, it's no surprise progressive governments are already working on initiatives.

In the first half of 2016, cities, municipalities and governments have been vocal in their plans for the technology.

Indeed, a quick overview of the projects in development shows how far the idea that blockchain could change government services has spread around the globe:

Delaware

In Delaware, the state where a majority of new companies will likely incorporate, Governor Jack Markell announced two blockchain initiatives in May at CoinDesk's Consensus 2016 event.

As detailed by the governor, the first effort is focused on moving state archival records to an open distributed ledger, and the second allows any private company that incorporates in that state to keep track of equity and shareholder rights on the blockchain.

At the time, Markell declared Delaware is "open for blockchain business", and hopefully, 2016 will see continued progress made in delivering on this promise.

Singapore

On the other side of the world in Singapore, the government has turned to blockchain for different reasons.

There, the city-state is seeking to prevent traders from defrauding banks, driven by an incident where Standard Chartered lost nearly $200m from a fraud in China’s Qingdao port two years ago.

Here, fraudulent companies used duplicate invoices for the same goods to get hundreds of millions of dollars from banks, so the Singapore government developed a system with the local banks focused on preventing invoice fraud by using the blockchain to create a unique cryptographic hash (a unique fingerprint) of every invoice.

The banks share this unique key, rather than the raw data. If another bank tries to register an invoice with the same details, the system will be alerted.

Estonia

Long one of the more progressive digital governments, Estonia has established an e-residency program where anyone in the world can apply to become an e-resident of Estonia.

In return, residents receive a digital ID card with a cryptographic key to securely sign digital documents, eliminating the need for ink signatures on official paperwork.

An e-resident can also open bank accounts using Estonia's e-banking system, set up an Estonian company using the country's online system and use their e-services. With the blockchain, Estonia is bringing worldwide residents to them virtually, and gaining new revenue streams accordingly.

Estonia also has a healthcare initiative where medical records are tracked, and as a patient, you know who looked at your record and when. This puts you in control of your own data, and you have transparency about the medical care you are getting.

Georgia, Ghana and Sweden

Another emerging area of focus is in government land registries.

The Republic of Georgia, for example, is developing a blockchain project focused on this goal and spearheaded by their National Agency of Public Registry. They want to show that Georgia is corruption free, modern and transparent government.

Another land registry application is taking shape in Ghana, West Africa, where they are implementing it in 28 communities to enable tamper-resistant property ownerships.

Again, the driving element was to make a statement against the perception that the country had corrupt practices, and this initiative is used as a signal to attract foreign investors.

Sweden is planning to place real estate transactions on the blockchain so that all parties involved in the transactions – banks, government, brokers, buyers and sellers – would be able to track the progress of the agreement once it is completed. This will enable instantaneous confirmation of valid transactions with the utmost levels of security and integrity.

UK

The UK is exploring the use of a blockchain to manage the distribution of grants. Monitoring and controlling the use of grants is incredibly complex, and subject to potential fraud or abuse.

A blockchain, accessible to all the parties involved, is a better way of solving that problem.

Activity areas

If your government, county, municipality, town, city or jurisdiction is not thinking about the blockchain, they should be.

There is plenty of room for innovation, especially in small cities and municipalities, as they are a perfect starting point.

Given the early stage of blockchain technology, it is a lot easier to implement solutions at smaller scales first, in jurisdictions that have between five to 300,000 citizens, instead of larger cities of more than a million inhabitants.

As a government entity, what can you do with the blockchain? Generically, there are four categories of activity:

Verification. Licenses, proofs of records, transactions, processes or events. Did this event take place? Was this service performed on this piece of equipment? Does this person have the right permit? Movement of assets. Transferring money from one person/entity to another. Enabling direct payments, once a work condition has been performed. Ownerships. Land registries, property titles, and any type of real estate ownership. The blockchain is a perfect keeper of the chain of custody for any physical asset. Identities. Government, cities should issue blockchain e-identities to its citizens, enabling them to securely use services like voting. An e-identity could become similar to a passport, allowing its holder access to a variety of services and rights.

Next steps

But, how do we get there? And what actions can the government take?

Government leaders should:

Get up to speed on the blockchain by understanding it first, and committing to exploring its potential. Put people in charge of developing a blockchain strategy. Maybe there are employees that have been exploring it already, and they need to spread their wings and gain legitimacy with new projects.  Start experimenting with blockchain technology via proofs of concept, sandboxes and small projects that do no harm. Develop new and more progressive ideas that are increasingly ambitious, and touch the lives of the citizens they are serving. Make a difference. Commit to introducing innovative blockchain-based solutions that cut costs and provide better or faster services to citizens.

Let’s hope the public sector around the world starts putting the blockchain on their agenda. Maybe then, we can see a significant difference in how government services are delivered.

Support beam image via Shutterstock

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.

DelawareGovernmentSingapore

Original author: Pete Rizzo

A web conference this week found a notable selection of industry thought leaders exploring lesser-publicized challenges and solutions for bitcoin scaling.

Following a longer conference in June, Tuesday's "encore edition" of OnChain Scaling saw presentations from Bloq co-founder Jeff Garzik; Cornell professor Emin Gün Sirer; and Berger Singerman counsel Andrew Hinkes. A byproduct of the long-running block size debate, the event has emerged as a way to highlight proposed technical changes designed to be made to the bitcoin blockchain directly, rather than through a top-layer solution.

Though a topic of controversy, the latter path to expanding the network has proved the preferred choice for Bitcoin Core, the network’s largely volunteer developer group. To date, these members of the development community have largely promoted and prioritized efforts such as sidechains and the Lightning Network, which would move transactions off of the main blockchain to achieve greater transaction capacity.

In this light, it was perhaps Garzik who criticized Bitcoin Core's approach most strongly, arguing it goes so far as to be undemocratic. By not proposing changes to network participants in a way that allows them to select from two versions of the blockchain, he asserted that Bitcoin Core has become a central authority for decision-making.

Garzik told the audience:

"A tiny few choosing bitcoin economics is anti bitcoin's ethos."

Garzik's statements give voice to some in the bitcoin community who argue that the in-progress top-level networks might not work as well as planned, and that on-chain solutions, while more difficult to engineer, are equally worthy of exploration.

While on-chain scaling advocates are perhaps best-known for advocating for an increase to the block size, the three talks offered diverse views on bitcoin’s challenges, touching on alternative bitcoin protocols and the legality of ethereum's recent hard fork.

Soft fork skepticism

Overall, Garzik's presentation cautioned that the community should not grow too comfortable with the current favored way of making changes to the bitcoin network.

Whether to help scale or make some other upgrade to the network, there are two ways that developers can change bitcoin’s rules: hard forks and soft forks. Garzik argued that soft forks are not necessarily a superior alternative to hard forks, as many developers have argued.

To make his point, Garzik pointed to Segregated Witness, a popular scaling solution that's currently being rolled out in bitcoin. He agreed that SegWit is a useful change, but argued that it’s perhaps overly complex, and that it should be added in a way that bitcoin users have a way to voice their opinion.

As an example, he noted that SegWit would introduce a more complex fee structure than currently in place, a development that wallet developers like BitGo's Jameson Lopp acknowledged in the talk's question-and-answer session.

Garzik went as far as to argue a goal of the community should be to completely remove developers from the decision-making process to deal with this issue.

"Decisions made by humans should be replaced by algorithms as soon as possible," he said.

'Scientific; approach

In another segment, Cornell professor Emin Gün Sirer outlined his project Bitcoin-NG, an alternative version bitcoin protocol he proposed in 2015, and many of Sirer’s comments were directed towards the aforementioned block size debate.

Sirer called Bitcoin-NG the "third way" and "a path out of the morass" in the debate, which has split the community between those who want to see an increase in the block size and those who want to scale transactions via other means.

He further offered advice on how he believes developers could best to determine whether to incorporate a change to bitcoin, scaling-related or otherwise. (How best to decide whether a change is good or bad has been in question the block size debate).

Sirer argued that an emphasis on science was missing from community discussions, and pointed to Cornell's cryptocurrency research arm's effort to test alternative protocols on a copy of the bitcoin network that’s low-cost to maintain.

"We cannot rely on gut feelings and vague concerns," he said.

The noted academic suggested that Cornell's testbed platform, 'Miniature World', could come to advance discussions, as it uses 1,000 nodes to test theoretical advancements.

Sirer said:

"Ultimately, the goal is for every bitcoin node that anybody runs out there, we’d like to have a virtual copy of it in the basement of the Cornell computer science department."

Sirer argued that this way of testing code changes is more efficient, realistic and easier, as it removes costs associated with mining, uses copies of real-world data and doesn't require potentially damaging test features to be implemented on an active blockchain.

Plastic chains image via Shutterstock

Bitcoin-NGScalabilitySegregated Witness

Original author: Alyssa Hertig

China Merchants Bank has become the latest Asia-based bank to join the R3 blockchain consortium.

The commercial bank, founded in the late 1980s, is the second financial firm in China to join the initiative. In June, insurance giant Ping An announced its membership, signaling the group's growing interest in Asia.

The bank, which claims to hold more than ¥2.6tn (roughly $390bn) in assets, has offices in both China and abroad, including one in New York where R3 is headquartered.

In statements, Tianhong Zhou, IT general manager for China Merchants Bank, expressed his enthusiasm for the project, stating that he believes blockchain holds "great potential" for the financial industry.

He added:

"We look forward to working together with R3 to deliver the innovation required to improve a range of financial services and processes."

Image credit: testing / Shutterstock.com

ChinaChina Merchants BankR3CEV

Original author: Stan Higgins

The credit union industry is following the lead of hackers and thieves, according to Jeff Johnson, chief information officer at Illinois-based Baxter Credit Union (BCU).

"This is going to sound strange," he said. "[But] criminals, no matter how much you hate them, are really smart people. They take the path of least resistance."

In his mind, if it’s working for international payments on the black market, there has to be a way to leverage the technology for above-board use that is just as robust, anonymous and secure.

It's one of the reasons BCU has joined 55 other credit unions and four of the largest credit union service organizations (CUSOs) on the CU Ledger blockchain project, led by the Credit Union National Association (CUNA) and Mountain West Credit Union Association (MWCUA).

The ongoing effort, those involved say, is similar to work being conducted at major consortium projects launched by big banks. For example, R3CEV has attracted more than 40 traditional financial institutions for trials that have focused on applying the tech to commercial paper and trade finance.

But while R3 has garnered more attention, CU Ledger believes it has a better chance of pushing technology through to commercial production first, due to the cooperative nature of credit unions.

"The two basic [blockchain] concepts are scale and security, and we've together credit unions representing enough members so that when we get this going we should be able to scale quickly," said Rich Meade, chief of staff and chief operating officer at CUNA.

He added:

"Plus, to have the four CUSOs collaborate on something hasn’t happened for a long time. This could be big, getting all those people at the table."

The credit union advantage

To Meade, this is setting up a David and Goliath-type dynamic, one where the smaller, nimbler and smarter participant might prove more adept at succeeding at its goals more quickly.

"We focus on individual people, while they focus on commercial entities," Meade said, adding:

"Credit unions have more to gain than to lose when looking at this opportunity. The competition among us isn’t big enough to push out [our] cooperative side."

That competition in the traditional banking sector is fierce is one of the reasons many analysts have turned skeptical of the private financial blockchain projects. Since banks see their customer information as a competitive advantage, the incentives aren't there for banks to collaborate on blockchain, especially with high-dollar corporate customers.

Further, the collaboration necessary for distributed ledger systems to work is something credit unions have succeeded at before.

For instance, the industry created the CUNA Mutual Group, which provides commercial and consumer insurance and protection products, and CO-OP Shared Branching, a national network of credit unions that share facilities so members have convenient locations to perform financial transactions.

The credit union industry also came together to form a technology standards body, CUFX, which developed standards for integrating software technology into existing credit union systems. CUFX went so far as to define the data fields (What is a member? What are the different loan types? Etc.) and specified how information is transmitted within credit union systems.

Software providers now have a standardized template for building for credit unions, making it faster and easier for them to plug into third-party software systems.

Furthermore, Meade is one of the better-suited candidates to steer CU Ledger, since he's built collaborative systems in the past. Before CUNA, as a consultant for the National Renal Administrators Association, he created a health information exchange that the US government eventually partnered with.

"Financial services has many similarities to healthcare, for instance you're dealing with encrypted, very sensitive information," said Meade.

The use cases

Unlike many of the enterprise blockchain projects, CU Ledger's work will be consumer-facing.

After a meeting in Chicago last week, CU Ledger has started working with sovereign identity provider Evernym Inc to build an identity-related proof of concept on top of a permissioned blockchain.

"Specifically in the credit union industry, one thing comes to mind is the whole digital identity, having a trusted identity owned by a member," BCU's Johnson said. "It's important because we're being faced with increasing fraud and identity theft."

Identity as it relates to ownership and privacy is a particularly hot topic today, and even more so in the credit union industry, which is focused on delivering better products and services to each individual member, Johnson said

Sovereign identity is the first track of the CU Ledger project, while the second will focus on scouring the blockchain industry to find the third-party provider that would be best to work with for the project in the long-term.

The plan is to have those two tracks meet in the middle by May of next year, with the proof-of-concept proven out and the top potential blockchain providers identified, Johnson said.

"When we pick a blockchain technology, we have to feel comfortable that it's going to be around decades from now,” he said. "If you think about the underlying guts of the technology, it has to be like the World Wide Web has been, because the storage of all the transactions needs to go on forever."

Another reason for shopping around for providers is that the group is still unclear exactly which use case will pan out. Johnson also thinks blockchain could be used by credit unions to more efficiently communicate and transact within the CO-OP Shared Branching network.

Meade added that another application credit unions are interested in is whether blockchain could create a more efficient management of indirect auto lending.

"Until you build the network, you don't know all the applications that could run on it,” said Meade. "There’s been a lot of hype around blockchain, but I think this is a lot more than just hype."

The CU Ledger group has had initial conversations with R3, but Meade said he wants the credit union industry to have its own platform.

"It’s important for credit unions to build this out and not have something dictated to them by other people with their own pricing,” he said, concluding:

"We want to create this as a utility for credit unions."

Credit union image via Wikimedia; Shutterstock

Credit UnionsFinancePayments

Original author: Bailey Reutzel

Board members of the California Public Employees' Retirement System (CalPERS) recently took part in a discussion on blockchain technology as part of a broader conversation about future investment opportunities.

The meeting is notable given the size of CalPERS, which manages just over $300bn in assets, making it the largest public pension fund of its kind in the US.

As previously reported by journalist Brian Cohen, the meeting (which took place in late July) featured a presentation by Jesse McWaters of the World Economic Forum. McWaters provided an expansive look at the current pace of development around the blockchain and FinTech, followed by a question-and-answer session from attendees.

Interestingly, CalPERS itself already has some exposure to the bitcoin and blockchain industry, albeit indirectly.

In 2009, the pension fund invested $200m in Kholsa Ventures, a Silicon Valley-based venture capital fund, and gave an additional $60m to a seed stage-focused fund run by Kholsa. Just over two years ago, Kholsa led a funding round for blockchain startup Chain, and the fund has also invested in Blockstream, 21 Inc and BlockScore.

Other public pension funds outside of the US have explored investments in the space. Earlier this year, the venture arm of the Ontario Municipal Employees Retirement System (OMERS) took part in a funding round for VC firm Digital Currency Group.

Whether CalPERS moves to more directly invest in the industry remains to be seen. However, recent reporting suggests that the pension fund hasn't had the best luck with its venture capital efforts. Struggling performance overall may dampen its appetite for riskier investments amid poor economic conditions.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group.

Image via Wikimedia

CaliforniaCalPERS

Original author: Stan Higgins

Bitfinex has reimbursed its first wave of customers.

Announced 1st September, the Hong Kong bitcoin exchange revealed it had purchased more than 1% of the blockchain debt tokens it issued to users in August as a way to pay them back for losses it incurred in a debilitating hack.

While a small step to recovery, analysts were largely positive about the move due in large part to the exchange's decision to purchase the tokens at an above-market value of $1 each, roughly double the market value when the redemption took place.

Since the company's issuance, the value of the tokens has fluctuated, but it has never approached the $1 mark promised by the exchange, sparking prominent concerns it would seek to buy back its own liabilities at a discounted market rate.

However, many still harbor doubts about the exchange, which lost roughly 120,000 BTC ($70m) in a security breach, and how it will navigate its complicated financial situation going forward.

While analysts said Bitfinex's efforts thus far are "respectable", others argue the markets will need to wait and see whether the exchange is committed to "a full recovery of lost coins".

Response reviewed

To rewind, the buyback is perhaps the most significant of a series of small steps made by Bitfinex since it temporarily halted trading and withdrawals last month and ultimately issued its own debt tokens on a blockchain.

The exchange first announced plans to generalize the financial loss it suffered in the hack across all customer accounts nearly a month ago. In exchange for the 36% haircut, Bitfinex provided accountholders with blockchain assets called BFX tokens.

At the time, the exchange stated BFX tokens could either be redeemed by Bitfinex or converted to equity in its parent company, iFinex, though many doubted the claim and its legality.

Yet, Bitfinex's decision this week "instills more trust and allows them to simultaneously develop the BFX marketplace", said Rik Willard, founder of and managing director of Agentic Group LLC.

Willard is not the only analyst who noted the redemption’s impact on the appeal of BFX tokens. Elsewhere, cryptocurrency investment fund manager Jacob Eliosoff emphasized that the market "is liking" the redemption.

He pointed to the token’s climb in value during yesterday's trading from $0.50 to $0.57 as a sign this assertion is correct.

Concerns linger

However, Eliosoff emphasized that he is more troubled about what he sees as a lack of transparency by the exchange in the wake of the hack. As reported last week, the exchange is reportedly still investigating the incident, though no loss report has yet been issued.

Other information has been scarce, as noted by Eliosoff.

"If their plan is to buy back the BFX in dribs and drabs like this, why not announce it? How did these funds suddenly become available?" he told CoinDesk.

He noted that Bitfinex has more time to plan and communicate than it did immediately following the hack, and therefore the exchange should take advantage of this opportunity.

Arthur Hayes, CEO of BitMEX, voiced similar concerns, telling CoinDesk:

"Many in the community would like to hear Bitfinex management layout a concrete plan for future redemptions."

More specifically, Hayes and Eliosoff would be interested in learning the financial performance the company requires to trigger future redemptions and "what portion of revenue is being dedicated toward extinguishing this liability".

Promise kept

While Eliosoff expressed his doubts about Bitfinex’s transparency, Petar Zivkovkski, director of operations for full-service bitcoin trading platform Whaleclub, took a slightly darker slant on the the exchange’s response to the security breach.

"I hold the view point that Bitfinex is trying to financially engineer their way out of this mess while transferring risk and debt onto their customers through their issuance of BFX debt tokens," he said.

More than one legal expert has asserted that Bitfinex has placed itself on shaky ground by distributing these tokens, as doing so opens up the possibility of both lawsuits and fines from government agencies.

Zivkovski’s portrayal of the situation may not seem particularly optimistic, yet Eliosoff noted that Bitfinex, at the very least, has shown it can keep its word.

Instead of buying BFX tokens for $1 each, the exchange could have just as easily taken the funds used and bought twice as many of these digital assets.

Eliosoff concluded:

"But I respect that they're sticking to what they said."

First flowers image via Shutterstock

BitfinexExchangesPrices

Original author: Charles Bovaird