Microsoft has revealed it is organizing a working group dedicated to improving smart contracts security.

Named 'Kinakuta', the group aims to make it easier for the industry to share information and tips about smart contracts, the term that somewhat loosely has come to refer to self-executing blockchain-based code.

Yet even while incumbents increasingly express interest in the idea blockchains could come to automate complex transactions, concerns about this use case have grown after a vulnerability led to the collapse of the technology's first large-scale implementation, The DAO.

Since then, there has been a growing realization that smart contracts are new and can sometimes be dangerous if used improperly.

However, Microsoft's director of business development and strategy Marley Gray believes open information and new tools might help developers avoid future mistakes.

Gray told CoinDesk:

"We feel there’s a huge opportunity here to involve the community. Kinakuta is the community building around Microsoft best practices and elsewhere, to collect best practices and tools and involve developers in creating these best practices."

Together with Andrew Keys, head of global business development at Consensys, Gray said he has drafted a list of 35 developers and companies that Microsoft wants in the group. These include organizations like the Ethereum Foundation, which oversees development of the ethereum blockchain; R3CEV, a banking consortium focused on blockchain; and startup BlockApps.

The formal announcement follows news earlier this month that Microsoft had authored a new white paper with researchers from Harvard that outlines a way to prove whether ethereum smart contracts will work as expected.

Developers can potentially use these resources to spot issues with their code.

"We wanted to explore the ability to potentially write smart contracts in a language where from the onset your smart contracts would be secure," Gray said.

The paper proposes a method of "formal verification," or the process of proving or disproving the correctness of a software program, or in this case, a smart contract.

This paper is one of the latest in a wave of tools trying to make smart contracts safer, such as entirely new programing languages tailored to smart contracts. The white paper proposes two tools to help verify smart contracts in three ways.

The first is Solidity*, which translates a piece of Solidity code to F*, a programming language that verifies whether programs will act as they should. Then there's EVM*, which decompiles the EVM bytecode representation of a smart contract to the Solidity source code.

This second tool is necessary because only 396 out of 112,802 contracts made the Solidity version of the code available on Etherscan at the time of the white paper, so using the bytecode is the next best option.

Despite Solidity*’s current lack of support for complex Solidity features like loops, the team was able to translate 46 out of the 396 contracts written in Solidity. After running these 46 contracts through Solidity*, they found that only a few of these contracts were "valid".

"This is a clear sign that a large scale analysis of published contract is likely to uncover widespread vulnerabilities; we leave such analysis to future work," the paper concluded.

However, it's worth noting that while many are excited about the speedy development of tools with a focus on smart contract safety, one industry leader thinks that developers will continue to make mistakes in the near term.

Ethereum creator Vitalik Buterin wrote that he doesn't think that these new areas of research will necessarily stop future situations like The DAO.

"There will be further bugs," Buterin said in an ethereum blog post exploring future smart contract security, “and we will learn further lessons.”

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Storied Silicon Valley accelerator Plug and Play recently revealed its biggest batch of blockchain startups yet.

As part of its fourth FinTech class, Plug and Play selected eight blockchain startups, and while the number alone is impressive, two things stand out about its new entrants. The first is a renewed focus on the bitcoin blockchain, and the second is the maturity of the companies, which include recognizable names with market-tested products.

But based on conversations with multiple participants, these ambitious founders are looking for more than mentorships.

If all goes according to plan, the startups selected could take advantage of working with Plug and Play's corporate partners (which include Deloitte, Capital One, Credit Suisse and US Bank) to eventually secure valuable partnerships that could take blockchain mainstream.

To help make that happen, Plug and Play said participants will work with a "corporate champion" from each institution who will advise and inform them through their business development.

Vice president of financial technology Scott Robinson told CoinDesk:

"We think of it as creating task forces on-site."

Meet the eight blockchain startups joining its latest class:

Nuco

A Toronto-based startup launched in June, Nuco was founded by three former members of Deloitte's blockchain team.

Now employing 11 people, the company is working to create a framework of blockchain-enabled infrastructures for both individual enterprises as well as companies looking to engage in consortia efforts with industry peers.

To begin that process, Nuco is first focusing on a customizable solutions designed to make it easier for blockchain companies to track compliance duties to the SEC and other regulators.

Nuco co-founder Kesem Frank told CoinDesk he sees the presence of major financial institutions as a way to bypass the "redundancies" of being introduced to many potential collaborators:

"Plug and Play represents a remarkable growth opportunity; it is a tremendous professional network that considerably streamlines the conversation between startups and established corporations," Frank said.

Tierion

Tierion is working to help clients verify a wide-range of data on the bitcoin blockchain.

Launched last year, the Hartford, Connecticut-based firm won $5,000 at CoinDesk's Consensus 2016 Hackathon, and it has since raised an additional $1m to expand it services from an initial focus on insurance.

Tierion founder Wayne Vaughan cited free office space "in the heart of Silicon Valley" among the assets provided by the accelerator.

Like other participants, he views the potential networking with banking partners as pivotal to his work.

Vaughan said:

"Each week, we're meeting with enterprise customers that we've met through Plug And Play."

The Sun Exchange

Originally based in the UK, this startup is working to connect solar energy investors around the world with vetted solar energy projects.

The exchange buys solar panels for business operations in South Africa and leases them to locals who want a green source of energy. To meet its goal, The Sun Exchange accepts bitcoin for cross-border payments.

As part of being accepted to Plug and Play, The Sun Exchange relaunched as a US corporation, The Sun Exchange Inc, which has absorbed the previous parent company in the UK and operational arm in South Africa. Newly hired CFO Larry Temlock has relocated to San Francisco to participate in the program.

Though The Sun Exchange’s founder and CEO, Abraham Cambridge tells CoinDesk he’s looking forward the chance to develop business relations and listen to advice from Plug and Play’s financial partners, he added that he’s most excited about what he has to offer them.

Cambridge said:

"We want to promote to them the benefits of clean energy investing [to] their internal requirements and tailor our offerings to match their criteria."

The Sun Exchange received its first cash infusion in December of last year when it crowdfunded nearly £16,000 on Indiegogo.

Since then the company was a finalist at the Consensus conference in May, hosted by CoinDesk.

Netki

This Los Angeles-based startup is looking to make bitcoin more consumer-friendly by using identity-based solutions.

Earlier this year, Netki launched a blockchain-based certificate to ensure a website is safe to visit, and in July, it announced it had raised $3.5m from a group of investors, including Plug and Play.

According to Netki CEO Justin Newton, the accelerator is more suitable for mature startups that have already released products.

Newton told CoinDesk:

"This is the perfect time for us to spend some time at Plug and Play and gain curated access to their corporate partners. We have already been able to begin some great relationships that we believe will lead to increased and accelerated market traction."

Eximchain

This trade finance startup is building a blockchain-based way to provide letters of credit necessary for small- to medium-sized businesses.

Founded by graduates of MIT, Brown and Northwestern, the team is building a smart-contract based system to let lenders and borrowers negotiate directly with one another.

Once terms are agreed upon the dispersal of the funds would occur automatically. A future version of the platform is described on the company's site as a way to demonstrate creditworthiness and improve the reputation of both traders and lenders.

ShoCard

Another digital identity startup to make the cut is Palo Alto, California-based ShoCard, which uses the bitcoin blockchain to verify identity.

Founded in 2015, ShoCard raised $1.5m in venture capital from AME Cloud Ventures and others shortly after launch.

In May of this year, airline IT company SITA announced that it had partnered with ShoCard to build a proof-of-concept aimed at streamlining how airlines verify passenger identities.

Stellar

Founded in 2014, Stellar is one of the more established startups accepted in the latest accelerator class.

Based in San Francisco, Stellar is seeking to create a distributed payment network that makes it more financially viable for large banks to serve the under-banked.

As of June, Stellar had multiple proofs-of-concept under development with Barclays South Africa and Deloitte, both of which are aimed at delivering financial services to the unbanked and underbanked in Africa.

Tradle

Tradle is building a “metaprotocol” on top of bitcoin’s blockchain to create a layer of trust for non-financial applications.

Beginning with know-your-customer tool 'Trust in Motion', the firm is working to provide a core registration starting in the European Union and around the world.

Tradle won the KPMG FinTech Innovation Challenge earlier this year in the blockchain category.

Disclaimer: CoinDesk is a subsidiary of Digital Currency Group, which has ownership stakes in Netki, ShoCard and Tierion.

Image via Plug and Play

Plug and PlayStartups

The central bank of Canada has published a new working paper that suggests its researchers believe digital currency exchange rates will become less volatile should adoption increase.

Penned by researchers Wilko Bolt (of the central bank of The Netherlands) and Maarten RC van Oordt (of the Bank of Canada’s Financial Stability Department), the paper offers a possible "economic framework" for exchange rate analysis. Published on 18th August, it further represents the latest work from a major central bank, following growing interest from this segment of the financial community in recent months.

The authors explore factors influencing digital currency exchange rates, which they write include existing demand for payments, the day-to-day moves of market speculators and the belief among some buyers about future mainstream adoption.

Ultimately, they conclude major price swings brought on by traders could subside if digital currencies see broader use for payments.

The authors note:

"Our model predicts that, as a virtual currency becomes more established, the exchange rate will become less sensitive to the impact of shocks to speculators’ beliefs and their inflow into and outflow from the virtual currency market. This prediction undermines the notion that the current high volatility of the exchange rates of virtual currencies will prohibit their widespread usage in the long run."

Later in the piece, the researchers assert that digital currencies with a "fixed supply" are likely to behave more like commodities than currencies, and that current exchange rates are potentially "a symptom of early development" – one that could potentially go away depending on how usage evolves.

"The future will show how much volatility will drop," they conclude.

The paper represents another step in the Bank of Canada's work with the technology, which has seen it comment on issues surrounding digital currencies over the past two years while at the same time exploring blockchain applications.

Earlier this summer, the Bank of Canada drew headlines when it unveiled a pilot project for a central bank-issued digital currency – an initiative that mirrors other work being undertaken at institutions like the Bank of England.

The bank has explored the impact of the technology in the past, with one senior official speculating in a speech last November that bitcoin could lead to "a new dynamic in the global monetary order" in which central banks "struggle" to carry out policy initiatives.

The full paper can be found here.

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Visa’s London-based innovation lab has announced its latest blockchain trial will focus on interbank payments.

Visa Europe Collab revealed today it has partnered with Toronto-based BTL Group to explore how the startup’s interbank settlement system can leverage blockchain and smart contracts to streamline domestic and cross-border payments between banks.

In statements, Hendrik Kleinsmiede, co-founder of Visa Europe Collab, said the two partners are now inviting European banks to participate in trials that would see them using the emerging technology for live payments to better explore its potential.

Kleinsmiede said:

"We’ll work closely together on the development and implementation of the PoC, ensuring that all participants come away with new knowledge and insight into the role that the blockchain could play in interbank settlements in the future.”

According to Financial Times, the partners will seek to conclude the project within 100 days.

The trial is the latest that finds Visa Europe Collab exploring blockchain. In July, the firm announced a micropayments trial with bitcoin startup SatoshiPay, a move that followed its initial work on remittances with blockchain firm Epiphyte in 2015.

One of the more novel proofs-of-concept to yet emerge, Visa Europe Collab’s work on this project found it exploring how blockchains could be used to extend the reach of traditional payment networks in developing countries.

For more on that 2015 trial, read our full report.

Image via Consensus 2016

RemittancesVisa Europe

Distributed ledger startup Nuco has inked its first formal partnership since being spun out from Deloitte's FinTech team earlier this year.

The deal with Terepac Corporation has resulted in what the companies are calling the "Terepac Blockchain", a distributed ledger designed to allow manufacturers to follow the entire life-cycle of their products, as part of what is known as the Internet of Things (IoT).

While Nuco continues with its original goal of building products designed to make it easier to launch industry-wide blockchain consortia, the partnership provides the first evidence of where that effort might eventually lead.

Nuco co-founder Kesem Frank told CoinDesk:

"The Internet-of-Things is actually a great example because it’s less about the velocity of transactions and it is much more about volume. To actually establish a platform according to different skills, you need to apply different thinking to the system level."

By tailoring different functionality based on corporate and industry-wide demands, Nuco believes it can further optimize the benefits of a distributed ledger.

In this first partnership, Terepac describes its blockchain, as "an immutable, tamper-proof, record of all device interactions". The blockchain is designed to record object-specific data about the past and present states of a wide range of products.

Founded in 2016, Nuco was originally a component of Deloitte's Rubix blockchain offering, but was moved outside the firm in order to scale its operations more quickly.

In addition to being a step for Nuco, however, the partnership is also the latest sign the IoT industry is beginning to explore blockchain more seriously.

Cisco, for example, published a report projecting in June of this year that machine-to-machine (M2M) connections that comprise the IoT will grow from 4.9bn in 2015 to 12.2bn by 2020, representing nearly half (46%) of total connected devices.

To provide increased customer service to the owners and manufacturers of those objects, Terepac Corporation was founded in 2005. But with increased attention being given to blockchain tech, the company's potential services have changed, according to Terepac’s founder and CEO, Ric Asselstine,

In interview with CoinDesk, Asselstine said that he initially only wanted to create a more efficient way for the manufacturers of objects to service those goods long after they were purchased.

But as he's been working with Nuco his vision has changed.

Asselstine said:

"We don’t know all the relationships and or value that can be formed from deploying blockchain technology. While I didn’t originally foresee this as an opportunity to be that charismatic leader in the space, the potential of the Terepac Blockchain is absolutely there."

Internet of Things image via Shutterstock

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A new report from financial giant Japan Exchange Group (JPX) contends that distributed ledgers will work "better" when applied to capital markets if third parties are involved.

The finding comes from a 27-page working paper, released yesterday, in which JPX offered insights into its proof-of-concept efforts, as well as the key takeaways from its experiments. For JPX, the report is the latest product of its deepening interest in blockchain, following a partnership with IBM announced in February.

Given that the bitcoin blockchain was designed to remove third parties from online transactions, the proposition that derivative technologies will be more effective without this feature is likely to emerge as a controversial one.

Still, JPX’s report argues that it's necessary for financial institutions to pursue this architecture as a means of guarding against the risk that blockchain data is accessible to other financial institutions who might be using a shared ledger.

The report reads:

"Considering these concerns or business requirements, it is preferable that all stored data is only accessible by related parties. Since this will lose the feature of ownership certification by public trust, nobody can validate his/her claim of securities ownership. Therefore, full data access privilege needs to be given to a trusted third party who is responsible for the ownership certification."

JPX revealed that during its proofs-of-concept, central securities depositories played the role of a certification authority, a system that it believes will be as secure as the decentralized version employed by the bitcoin blockchain at scale.

Other entities that could come to facilitate blockchain transactions include regulators and IT vendors, it said.

The authors go on to assert that having a third party will also mitigate the risk of settlement failures, arguing it could mediate situations between buyers and sellers in which gridlock emerges due to the lack of a promised delivery.

The statements are the latest that find major financial institutions grappling with the question of how to gain the speed and efficiencies of shared ledgers without offering full transaction history to all participants.

As noted by leading analysts, this issue, whether real or perceived, has emerged as a pressing question that may be holding back larger adoption of distributed ledger tech.

Replicating bitcoin

Yet even as the paper finds JPX offering a more narrow definition of a distributed ledger for enterprise firms, it was effusive in its praise for how the bitcoin blockchain has applied advances in cryptography to finance.

For example, the authors said that while the bitcoin blockchain featured what they referred to as "well-defined parameters", they noted that DLT is not yet a comparable technology in terms of its development stage.

Still, the report went so far as to label distributed ledger technology as "extremely attractive" for infrastructure uses, citing its immutability and resistance to system failure, as well as its ability to enable a shared ownership registry.

"On top of these technological features, redesigning the business process by exploring DLT would bring industry-wide efficiencies including financial service innovation or broader cost reduction," the report reads.

The report evaluates six aspects of DLT including its applicability to capital markets, throughput, consensus process, data privacy, availability and cost.

JPX sees clearing and settlement as the layer it considered "the most important use case", as it could make existing workflows "more efficient", while the firm said it believes other use cases, such as trading or reconciliation, would be more problematic.

Call to action

Elsewhere, JPX sought to indicate that it remains committed to investigating and expanding its support for distributed ledger applications despite challenges ahead.

One of the primary reasons, according to the report, will be the cost savings it believes financial institutions can achieve by changing the existing business processes with DLT. The report asserts that DLT could come to reduce hardware, software and maintenance costs.

The paper uses this observation as a call to action, with JPX voicing its commitment to participate in more technology trials as an infrastructure operator.

The authors concluded:

"Unlike bitcoin, which has been operating since 2009, DLT application in capital market infrastructures has rarely been investigated and needs further experiment and enhancement until it matures to be a fundamental technology of capital markets."

Image credit: Takashi Images / Shutterstock.com

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