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Thursday, 03 December 2015 00:00

The High Stakes Game of the Future of Digital Finance Gets Real, Real Fast! Featured

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Two years ago, when I was about to wind down my very successful advisory blog to run headfirst into the Bitcoin Blockchain tech world, practically everyone I knew thought I was insane. Let's rewind back 23 days short of 2 years ago today -  Dec 26, 2013.

Now, back to today...

CFTC Commissioner: The Blockchain Could Cost Wall Street Jobs

CFTC Comissioner J Christopher Giancarlo said that the open ledger underlying bitcoin has "the potential to revolutionize modern financial ecosystems", pointing to examples like the recent blockchain working group established by the London Stock Exchange, the CME Group and several European banks and trade settlement organizations:

"This transformation will not come without consequences, however, including a greatly disruptive impact on the human capital that supports the recordkeeping of contemporary financial markets. On the other hand, the blockchain will help reduce some of the enormous cost of the increased financial system infrastructure required by new laws and regulations, including Dodd-Frank."

Blythe Masters, one of the most powerful women (and persons) on Wall Street turned down an offer to run Barclay's Investment in order to stay at her Blockchain tech startup, as reported by Reuters:

New Barclays Plc (BARC.L) Chief Executive Jes Staley approached his former JPMorgan colleague Blythe Masters about running the British bank's investment bank division, a person familiar with the matter said on Wednesday. But Masters told Reuters she was fully committed to running her company, Digital Assets Holdings - a startup designed to speed the trading of derivatives by using technology associated with bitcoin. She joined the company as chief executive in March.

Goldman Sachs Files Patent Application For Securities Settlement Using Cryptocurrencies.

The patent application, with a priority date of May 16, 2014, apparently attempts to lay claim to marker technologies like colored coins or the Open Assets Protocol (OAP). As excerpted:

[0014] In various embodiments, the described technology provides a virtual multi-asset wallet as a traditional securities and cash account for an individual, investor, and/or trader (“trader”). The wallet has technology to generate, manipulate, and store a new cryptographic currency, referred to as SETLcoins, for exchanging assets, such as securities (e.g., stocks, bonds, etc.) cash, and/or cash equivalents via a peer-to-peer network. In one or more embodiments, the described technology facilitates transactions between virtual wallets and, in the same and/or other embodiments, between a virtual wallet and non-virtual wallet technologies (and vice versa) on the same peer-to-peer network. For example, a virtual wallet can exchange (e.g., via a transaction method described below, such as a two-phase transaction) one or more SETLcoins for, e.g., U.S. dollars and/or other currency at a brokerage account, deposit account, bank account or other financial storage entity. Alternative or additionally, U.S. dollars and/or other currency at a brokerage account, deposit account, bank account or other financial storage entity can be exchanged for one or more SETLcoins in virtual wallet on the peer-to-peer network. 

I'm not sure it would be (or should be) allowed. If I recall correctly, there was a substantial amount of prior art surrounding colored coins as of May of 2014. Here's a wiki post from the createors of Coinprism, the colored coin wallet on May 15, 2014 (a day before the priority date of the Goldman Sachs submission):

Coinprism - The first colored coin web wallet
Colored coins allow you to store assets on the Bitcoin blockchain. There are many interesting applications to colored coin. You could have an IPO on the blockchain by issuing shares as a colored coins, and send them to your shareholders. The shares can then be traded almost instantaneously and for free through the Bitcoin blockchain. You could have smart properties represented by colored coins. You could store your house on the blockchain by issuing a single coin, then the ownership of the house can be transferred with a simple Bitcoin transaction.

If you are interested in the colored coin protocol we are using, you can have a look at this specification.
Wallet: www.coinprism.com
Coinprism Blockchain explorer: www.coinprism.info
Coinprism Asset directory: www.coinprism.info/assets
Bitcoin Wiki:  en.bitcoin.it/wiki/Coinprism
Forum:Coinprism Developer Forum
API:Coinprism API documentation
Blog: blog.coinprism.com
Twitter:@Coinprism
Facebook:Coinprism Facebook page
Google+:Coinprism on Google+
Reddit:Coinprism on Reddit
Crunchbase:Crunchbase profile

Here's an excerpt from the description of the “invention”:

[0020] In one or more embodiments, the described technology adapts and/or generates cryptographic wallet which holds a new cryptographic currency (CC) (i.e., an SETLcoin) and corresponding cryptographic protocol for exchanging securities between nodes on a peer-to-peer network. Rather that representing a single transferable, object an SETLcoin wallet holds multiple positionable items (e.g., a security item, such as a share), herein referred to as a Positional Item inside Cryptographic currency (PIC), and a position (i.e., a quantity of the PIC represented by an SETLcoin wallet). A PIC is an agreed upon reference used by the peer-to-peer network to refer to, e.g., a particular security. For example, "IBM" (the stock market symbol of the company by the same name) can also be a PIC used by the peer-to-peer network to refer to IBM stock. A PIC, in some embodiments, is determined (and invalidated) by an issuer. An issuer (e.g., a company, underwriter, municipality, government, etc.) can have multiple PICS to represent different types of securities. For example, IBM stocks can be represented by PIC "IBM-S" and IBM bonds by PIC "IBM-B". In some embodiments, PICS are issued (and destroyed) by highly authoritative entities. For example, dollars available on the SETLcoin network represented by, e.g., PIC "USD" may be authoritatively issued by, for example, the U.S. Treasury. However, the described technology can issue PICS based on various other techniques (e.g., network node agreement, exchange regulation, lease or purchase, auction, etc.) and can be named based on, e.g., a company's name, its market symbol, its branding, its security name, availability, or a preferred format (e.g., length, abbreviation, etc.). 

[0021] An SETLcoin wallet or transaction can house a single security, as described above, or multiple denominations of the same security (e.g., 1 IBM-S SETLcoin valued at 100 IBM shares). SETLcoin wallets or transactions may also house multiple securities (e.g., 1 IBM-S SETLcoin and 2 GOOG-S SETLcoins). SETLcoins are exchangeable for, e.g., other SETLcoins and/or other cryptographic currencies (e.g., peercoins). For example, a single IBM-S SETLcoin may be exchangeable for one or more "GOOG" SETLcoins (i.e., Google shares), for 13,000 USD SETLcoins, 100 litecoins, and/or for 5 bitcoins. 

Wait a minute! That sounds awfully familiar... Here's a link to the same apparent methodology already in action BEFORE the priority date of Goldman's application - First Colored Coin Initial Public Offering [Monthly Dividends]

Colored coin offering

As I see it - and I fully admit that I am a layman FinTech entrepenuer, not an IP laywer, nor a software engineer - Goldman's application is not a true invention in any form. It appears to merely be a recast of the hard work of Flavien (visible to all thanks to his Github commits leading up to the Goldman patent application priority date) and others who have been deeply embroiled in solving these problems well before that application was filed. It's worth noting that Goldman isn't the first big bank to attempt to stake a claim in this emergent space. Be aware that this bank's CEO and chairman, who also sits on the board of the Federal Reserve Bank of New York, and who's company tried to patent Bitcoin-like tech 175 times (and was rejected each time), says:

Alas, I digress... Assuming arguendo (that’s lawyerspeak meaning, “for amusement”. Yes, I know I spend too much time around them...) that the Goldman Sachs patent is allowed in its published form, my intuition says that anyone using colored coins to represent real world assets (AKA “watermarked coins” or “tokenized assets”) would likely infringe on one or more of the (fairly broad) claims. I don't see how that would further the reach of the Bitcoin ecosystem, or any associated technologies. It would certainly further the bonus pool at Goldman, though.

There are definitely innovative startups who have truly unique and patentable inventions and quite possibly even better written and eariler submitted patent applications. Methinks not eveyone has the same access to the capital pool, though. It will be truly interesting to see if the new crowdfunding rules that allow non-accredited investors to partake in these high risk, high return startups enable the young scrappy startups to truly challenge the Goldmans of the world. I for one, believe the world would be a better place if that were true.

 

Read 2478 times Last modified on Thursday, 03 December 2015 20:17

1 comment

  • Comment Link Antonio Thursday, 25 October 2018 03:57 posted by Antonio

    Very soon this site will be famous among all blogging viewers, due to it's pleasant articles

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