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© Z/Yen Group
2016
Z/Yen Group Limited
Risk Reward Managers
90 Basinghall Street
London EC2V 5AY
United Kingdom
tel: +44 (20) 7562-9562 www.zyen.com
Mutual Distributed Ledgers
(aka blockchains)
Without The Money
Professor Michael Mainelli
@mrmainelli
[email protected]
Edinburgh, 28 April 2016
Scotland
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© Z/Yen Group
2016
♦ Special – City of London’s leading commercial think-tank
♦ Services – projects, strategy, expertise on demand,
coaching, research, analytics, modern systems
♦ Sectors – technology, finance, voluntary, professional
services, outsourcing
Independent Publisher Book Awards Finance, Investment &
Economics Gold Prize 2012 for The Price of Fish
British Computer Society IT Director of the Year 2004 for
PropheZy and VizZy
DTI Smart Award 2003 for PropheZy
Sunday Times Book of the Week, Clean Business Cuisine
£1.9M Foresight Challenge Award for Financial £aboratory
visualising financial risk 1997
Z/Yen
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© Z/Yen Group
2016
♦ Distributed ledgers (1995-present)
♦ LIBOR and FX surveillance (2007-present)
♦ PropheZy and VizZy – automation &
visualisation of compliance monitoring
(2002-present)
♦ Prediction markets and bubbles (1998-
present) – www.extzy.com
♦ Market intelligence – Ministry of Defence,
e.g. Vision 2020 (1994-present)
♦ Avatars for Big Data (2010-2012)
♦ Financial £aboratory Club visualising risk
(1997-1998)
Z/Yen in Finance Research
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2016
The Study Of Money Is
The Root Of Much Madness
[www.dilbert.com, Thursday, 27 January 2015]
[http://illusionsetc.blogspot.com/2005/08/moving-mobius-strip.html]
www.longfinance.net
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2016
Bit + Coin
Spectrum.ieee.org “How a Bitcoin Transaction Works”
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2016
Ledgers: Look Beneath The Coins
“…
the potential impact of the distributed
ledger may be much broader than on
payment systems alone. The majority of
financial assets — such as loans,
bonds, stocks and derivatives — now
exist only in electronic form, meaning
that the financial system itself is already
simply a set of digital records.”
Bank of England, Quarterly Bulletin
(2014, Q3)
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2016
Our Research
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© Z/Yen Group
2016
Possibly Distributively Ledgerable
Area Possible Applications Financial instruments, records, models
Currency, private and public equities, certificates of deposit, bonds, derivatives, insurance policies, voting rights associated with financial instruments, commodities, derivatives, trading records, credit data, collateral management, client monies segregation, mortgage or loan records, crowd-funding, P2P lending, microfinance, (micro)charity donations, account portability, airmiles & corporate tokens, etc.
Public records Land and property titles, vehicle registries, shipping registries, satellite registries, business license, business ownership/incorporation/dissolution records, regulatory records, criminal records, passport, birth/death certificates, voting ID, health and safety inspections, tax returns, building and other types of permits, court records, government/listed companies/civil society, accounts and annual reports, etc.
Private records Contracts, ID, signature, will, trust, escrow, any other type of classifiable personal data (e.g. physical details, date of birth, taste) etc.
Semi-private/semi-public records
High school/university degrees and professional qualifications, grades, certifications, human resources records, medical records, accounting records, business transaction records, locational data, delivery records, genome and DNA, arbitration, genealogy trees, clinical trials, etc.
Physical keys Key to home, hotel, office, car, locker, deposit box, mail box, Internet of Things, etc. Intellectual property
Copyrights, licenses, patents, digital rights management of music, rights management of intellectual property such as patents or trademarks, proof of authenticity or authorship, etc.
Other records Cultural, historical events, documentary (e.g. video, photos, audio), (big) data (weather, temperatures, traffic), SIM cards, archives, geostamping, etc.
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2016
Why Does A Central Registry Exist?
Financial services are based
on ‘mistrust’ & leverage
♦ Validate - Sin of
Commission – forgery of a
transaction
♦ Safeguard - Sin of Deletion
– reversal of a transaction
♦ Preserve - Sin of Omission
– censorship of a
transaction
[Robert Sams, “Blockchain Finance” (March 2015)]
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© Z/Yen Group
2016
? Validate – “a trust model for timestamping”
Safeguard – “a set of rules for updating
state via blocks”
Preserve – “a shared state”
Persistent & Pervasive
Reducing Natural Monopolies
[Nick Williamson, “What Is A Blockchain?” (12 April 2015) - http://blog.credits.vision/what-is-a-blockchain/]
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2016
Ledgers Are Boring
“Sharing Ledgers For Sharing Economies:
A Boring Introduction To Mutual Distributed Ledgers” Z/Yen (2015) - https://youtu.be/Hwhigpr4720
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© Z/Yen Group
2016
♦ ledger – a record of transactions
♦ distributed – divided among several or many, in multiple
locations
♦ mutual – shared in common, or owned by a community
♦ mutual distributed ledger (MDL) - a record of
transactions shared in common and stored in multiple
locations
♦ mutual distributed ledger technology – a technology that
provides an immutable record of transactions shared in
common and stored in multiple locations
♦ blockchain - “a transaction database shared by all nodes
participating in a system based on the Bitcoin protocol”
Terminology Evolving
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2016
♦ 1976 – Diffie-Hellman & Merkle
(also RSA)
♦ 1990 – Mondex, Digicash, Flooz
♦ 1993 – Encrypted Open Books
♦ 1995 – Z/Yen Stacks & Sleeves
♦ 1996 – Ricardo payment system
♦ 1998 – Wei-Dai b-money, Bitgold
♦ 1999 – LOCKSS & CLOCKSS
♦ 2000 – Gnutella
♦ 2004 – Ripple
♦ 2007 – Estonia
♦ 2009 – Bitcoin
Mutual Distributed Ledger Timetable
♦ 2013 – Silk Road, FBI, Alderney coin
♦ 2014 – Regulators – Jersey &
Alderney, Isle of Man, FATF, ECB,
State of New York
♦ 2015 – IBM-Samsung, Bank of
England research agenda, UK budget
for cryptocurrency standards,
Barclays, UBS, BNY Mellon, Goldman
Sachs, USAA, NASDAQ, Honduras
land registry, Channel Islands
Standards for MDLs, Fine (sic) Sign of
having arrived – Ripple $700,000, Sign
of the Tines – Bitcoin forking hell,
Economist Special, FT Special
♦ 2016 – UK government, Blythe
Masters DAH, R3, SafeShare
Insurance, CLEAR, …
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2016
Buzz or Hype? The New New Thing
[Ken Tindell mashup - 14 May 2015 https://twitter.com/kentindell/status/598865133247569920]
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© Z/Yen Group
2016
The Old Old New New Thing…
[www.dilbert.com, Friday, 17 November 1995]
[Internet (1976 for me), databases (Oracle, Ingres, DBII,
relational/hierarchical/distributed), web (SGML, Gopher), ‘Internal Internets’ (i.e.
intranets), social media (SixDegrees)…]
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2016
Hype?
14 January 2016 7 Emerging Trends For Bitcoin and the Blockchain Coindesk
15 January 2016 British Isle Alderney Sponsors Distributed Ledger Project Coindesk
01 February 2016 BAFT Event Attendees See Future With Billions of Blockchains Coindesk
23 February 2016 Building Blocks: A History Lesson In Ledger Technology BlockchainBriefing
10 March 2016 Blockchain, the Technology Behind Digital Currency Bitcoin, Makes a Splash in Insurance to Offer a Solution to Homeowners Renting out Part of Their Property
City AM
14 March 2016 Lloyd's Underwrites First Blockchain Solution for Sharing Economy Insurance Post
17 March 2016 Blockchain Insurance Start-Up SafeShare Launches First Blockchain Insurance Solution with Vrumi
Blockchain News
18 March 2016 SafeShare Releases First Blockchain Insurance Solution For Sharing Economy
EconoTimes
19 March 2016 SafeShare Insurance over Blockchain for Shared Economy Businesses
NewsBTC
23 March 2016 Z/Yen: Clinical Trial Records Move To Blockchain Blockchain News
23 March 2016 Clinical Trial Records Move To Blockchain MondoVisione
01 April 2016 UK Start-Up Pilots Blockchain Powered Trading Platform - First Implementation Of Long Wavelength Trading
MondoVisione
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2016
♦ Identity systems – PwC KYC Centre
of Excellence
♦ Wholesale insurance ‘deal rooms’
♦ Retail insurance – motor, home,
small business
♦ Credit validation and scoring
♦ Clinical trials – 60,000 per day
♦ Timestamping & retrieval –
MetroGnomo.com with States of
Alderney
Sample MDLs We Have We Built
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2016
InterChainZ & IntereXchainZ
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© Z/Yen Group
2016
Identity, Identity, Everywhere
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© Z/Yen Group
2016
Insurance - ACORD Messaging
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© Z/Yen Group
2016
MetroGnomo
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© Z/Yen Group
2016
INSERT OTHER
Host details Property details Peroid of cover Policy
cancelled
Reason for cancellation
Premiu
m IPT
From To
First Name
Surname
Unique Refere
nce Address Poscode Address Postcod
e Date Time Date Time 9.50%
John Smith VR000
1 123 Bank
Street EC2V 5AY 54 Woodhill
Lane W17 RQ No £2.00 £0.19
Select £-
Select £-
Select £-
Select £-
Select £-
Select £-
Select £-
Select £-
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2016
Process Change Difficulty
Technology
Change
Difficulty Asset Transfer
Archiving
Contract Execution
Shared Data Timestamping
Market
Wholesale Payments
Asset Maintenance
Regulatory Reporting
Identity
Deal Rooms
Process versus Technology
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2016
*In some
territories these
can be onshore
Current Operating Model
Coverholder & Service Company – Key Interactions
24
NB: Relates to Lloyd’s business only. This
diagram does not include known issues such
as: oversight, approval, audits and complaints
Justification for RAG status
1) Multiple data formats
2) Negative Londonisms, e.g. Declaration,
onerous data requirements
3) Paper usage, photocopying and
scanning, duplication
4) Negative Londonisms, e.g. LPANS,
Bureau queries
5) Manual mismatch clearing, data duplication
5a) ACORD XML
6) Lack of structured data, no written data or
‘Net of RI’
7) Lack of structured data. three days to
settle monies
8) Lack of structured data, duplication
across carriers
9) and 10) Lack of audit trail and granularity,
signed data only
Various
reports
Risk query, claims, Policy etc.
Reporting Data
Risk, premium, claim
information; premium and
claims payments Referrals and
responses
Quote, Policy, Claims
Advice, Declaration,
Premium Payment etc.
Policy, Claims
Advice,
Premium
Payment etc.
Domestic Market
London Market
International
Offices
1
1
1
2 2 2
1
0
Tax and
Regulatory
Reporting
Agreement
Process
Bureau Submission
Regulatory
Information
(Lloyd’s only)
Syndicate Returns (Lloyd’s only)
Central Settlement
London Market
Carrier(s)
Approved
Broker
4
5 6
8
7
9
3
Lloyd’s
Lloyd’s
Business
placed outside
LM
Bureau
Services
LDR 5
a
* In some territories these can be onshore.
Key: Inefficient process 1 Sub-optimal process Efficient process Process sequence
Client (can be in or out of
territory)
Local / Placing /
Producing Broker*
Regulators
and Tax
Authorities
Regulators
and Tax
Authorities
Coverholder / Service
Company (TPA for some
claims)
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2016
Regional Broker
Policy Holder
Target Operating Model (TOM)
London Market – Key Interactions
25
Local Broker
Interaction
Any direct interaction
would either be where
local broker is a
subsidiary of the
Approved Broker, or
where local broker
has been approved in
its own right
Regulatory
Information
for IUA
E.g. Quote request
Declaration
Claims Advice
Premium Payment
*
Risk query,
claims, Policy
etc.*
Non Service
Hub Activities
6
Approved Broker
2
5
4
7
6
7
2
1
Lloyd’s
Data feed
Data feeds
Direct
access to
Carrier via
Hub
Data feed
(ACORD XML)
Real-time
integration
and ACORD
messages
Real-time
integration
and ACORD
messages
Face-to
face
negotiation
(as
required)
Broker Authorised: Direct
Policy, Claims Advice,
Premium Payment,
Endorsements etc.
Justification for RAG status
1) and 2) Easier access to central
services
3) Placing avoiding paper with single
contract version and no re-keying of
data; enhance trading floors
4) and 5) Easier access to central
services (ACORD) to avoid
duplicative processes and rekeying
data
6) Data provided to Lloyd’s and IUA in
ACORD XML for consistency, audit
trail and automated reporting
7) Written as well as signed data
provided to regulators, full audit trail
and consistency
3
London Market
Carrier(s)
Optional Channels
Customer Interactions
Carrier Interactions
Carrier
Services
Bureau
Services
e-Placing Services
Document
Repository
Claims Services
Broker
Services
Customer
Services
Data services
Message Hub (TMEL)
Service Hub
* Encourage Data Standards adoption, don’t enforce a new Londonism
Key: Inefficient process 1 Sub-optimal process Efficient process Process sequence
NB: Brokers primarily interact with broker
and market services, NOT carrier or Hub
services
Surplus Lines
Broker
Local Broker
London
Market
Companies
IUA
Companies
Regulators
and Tax
Authorities
Structure Data Capture
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© Z/Yen Group
2016
No
Trusted
Third
Parties
Single
Trusted
Third
Party
Efficient
Inefficient
Master Node
Supervisor Nodes
Majority Nodes
Collective Nodes
Free for All Nodes
Bitcoin Ethereum
Ripple
Central Database
‘Woven’ Broadcasting
Mistrust Costs Coins
Paper
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2016
Economic Matters
Factor Bitcoin Ethereum ChainZy
Speed – transactions per second
7 tps 30 tps 2,000 to 10,000 tps (single transmitter)
Storage Fixed Fixed Variable
$/transaction $0.10 to $2.50 $0.20 to $5.00 <$0.000001
Validation time 10 minutes 15 seconds 0.0001 second
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2016
♦ Identity & health, clinical trials
♦ Credit
♦ Capital markets – banks, brokers, IDBs, exchanges, CCPs,
CSDs, custodians, data vendors, industry groups
♦ Insurance – wholesale insurers and reinsurers, mutuals
♦ Standards and trade bodies (e.g. payments councils),
shipping, nuclear and other large-scale projects, aviation,
chain-of-custody, …
♦ Government – identity management, public records,
regulate-use-supply
♦ Games and prediction markets
♦ Legal - intellectual property, escrow
Where Are We Going?
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2016
♦ Usable
visualisation, apps, key structures
reporting, e.g. ‘receivers’, data location
♦ Immutable - preserve
partial data holding
long-term data storage
♦ Distributed - safeguard
transmitting & receiving, high volumes, multiple transmitters
‘genetic splicing’ and integrity
support vector machine surveillance
♦ Mutual - validate
validation methods
standards
Digital Vellum
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© Z/Yen Group
2016
♦ Mutual distributed ledgers help communities
share information across time and space, less
vulnerable to natural monopolies
♦ Mutual distributed ledgers help make better
‘contract’ utilities by:
safeguarding transactions
preserving transactions & data
♦ Mutual distributed ledger technology will
displace much messaging and shared data
functions
… try one out … www.MetroGnomo.com
Closing Thoughts
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© Z/Yen Group
2016
Thank you!
When Would We Know Our Commerce Is Working?
“Get a big picture grip on the details.”
Chao Kli Ning