Governing And Auditing Mutual Distributed Ledger (aka blockchain) Systems

Transcription

1 The Dark Side Of The Chain? Z/Yen Group When would we know our financial system is working? Governing And Auditing Mutual Distributed Ledger (aka blockchain) Systems Tuesday, 23 May, London Z/Yen Group Limited 90 Basinghall Street London EC2V 5AY United Kingdom tel: +44 (20)

2 10:00 10:20 Welcome and Introduction 10:20 11:10 The Good, The Bad, And The Ugly Permissioned and Un-permissioned Ledgers 11:10 11:40 BREAK 11:40 12:40 Securities Markets Infrastructure Auditing A Permissioned Distributed Ledger/Blockchain 12:40 13:40 LUNCH 13:40 14:30 The Dark Side Of The Blockhain Auditing The Wider Ecosystem 14:30 15:00 BREAK 15:00 16:00 Responsibility Without Power? Managing A Permissioned Distributed Ledger/Blockchain 16:00 17:00 Networking Agenda

3 Today s event was made possible by the kind sponsorship of

4 About When would we know our financial system is working? Objectives: Expand Frontiers Change Systems Deliver Services Build Communities London Accord Financial Centre Futures Meta- Commerce Eternal Coin

5 Systemic Bright Or Scrunch Dark?

6 Long Finance Research Agenda

7 Some Of Our MDL Research

8 MDLs Are Database Technologies Centralised Databases Distributed Databases Mutual distributed ledgers (unpermissioned) Storage Single master Multiple copies Definition of data Participation Rights, e.g. updating of entries Validation of data Reconciliation of data Robustness Multidimensional, typically using some approximation to the relational database design of Codd Closed Governed by separate data base management system Only necessary when data is moved. Historically vulnerable to server failure Mutual distributed ledgers (permissioned) Specialised single dimensional, e.g. ownership, amount Open, new nodes can be freely added Built into the ledger protocol Uses proof of work or some weighted voting schema such as proof of stake New nodes added subject to agreement by core participants Configuration file determines all node rights to decrypt/ update Typically based on confirmation by core participants Iterative, trading off consistency against availability Resilient, continues to update even with partial node availability

9 Central Third Party Transformation Z/Yen Group MDL reduces role of trusted third parties (central authorities) safeguarding preserving the history of transactions Not Bitcoin maximalism, central third parties needed for: confirming existence of the asset (security, money, or other asset) to be traded and community membership (identity) compliance with law and regulations guaranteeing rights of those participating in the transaction Further institutional arrangements needed for governance, permissioning, identification, and dispute resolution

10 Mistrust Costs Coins Free for All Nodes No Trusted Third Parties Collective Nodes Woven Broadcasting Supervisor Nodes Efficient Majority Nodes Paper Master Node Central Database Central Third Party Ethereum Bitcoin Ripple Inefficient

11 Generic MDL Opportunities Identity Wholesale Payments Contract Execution Technology Change Difficulty Archiving Regulatory Reporting Market Asset Maintenance Asset Transfer Timestamping Shared Data Deal Rooms Process Change Difficulty

12 Real Work Needs Identity

13 Real World Standards & XML Matter

14 Real World Uses Multiple Ledgers

15 Real World Economics Matter Z/Yen Group Factor Bitcoin Ethereum Custom Speed transactions per second 7 tps 20 to 30 tps >10,000 tps per single transmitter; unlimited transmitters Storage Fixed Fixed Fixed or Variable $/transaction $0.10 to $2.50 to $xx,xxx $0.20 to $5.00 to $xx,xxx <$ Validation time circa 10 minutes circa 15 seconds < second

16 Not Just Financial Audit Z/Yen Group ISO ISO ISO Information Security Risk Management Organisational Resilience ISO 19600:2014 Compliance Management Systems ISO 30301:2011 Information And Documentation -- Management Systems For Records ISO 9001:2015 ISO/DIS ISO/DIS Quality Management Systems Collaborative Business Relationship Management Anti-Bribery Management Systems ISO/DIS Sustainable Development Of Communities -- Management Systems With Guidance For Resilience And Smartness

17 Exchange rate CC Simulation & Auditing Exchange rate over time (single trial) Days Amount minted Days The cost of newly minted cryptocurrency caps the exchange rate. In this example, the initial exchange rate was 1 but the cost of minting was 1.5 units. The cryptocurrency rose, reached the cap, then gently fell once minting started. This is typical in our simulations.

18 Simulation & Auditing

19 COD-VERB Cost money spent acquiring and maintaining Ownership clear title Disclosure important to external world Value ability to confirm and replicate valuation through structured methodology and/or benchmarking Existence evidence of scale and activity Responsibility people who know and maintain Benefit ability to estimate measurable value from ownership

20 Keynote 1 The Good, The Bad, And The Ugly Vinay Gupta

21 Panel 1 Permissioned And Un-Permissioned Ledgers Vinay Gupta Greg McMullen Avtar Sehra Ian Angell

22 Break Please be back in your seats by 11:40

23 Keynote 2 Z/Yen Group Securities Markets Infrastructure - Key Issues And Technological Challenges Professor Eva Micheler

24 Panel 2 Auditing A Permissioned Distributed Ledger/Blockchain - The Technical Issues Narayanan Vaidyanathan Chris Mills Ross Laurie Matthew Leitch

25 LUNCH Please be back in your seats by 13:40

26 Keynote 3 The Dark Side Of The Blockchain Dr Dionysios Demetis

27 Panel 3 Auditing The Wider Ecosystem Dionysios Demetis Tom Hingley Vic Arulchandran Bob McDowell Daniel Broby

28 Break Please be back in your seats by 15:00

29 Keynote 4 Responsibility Without Power? Dr Markos Zachariadis

30 Panel 4 Managing A Permissioned Distributed Ledger The Governance Issues Markos Zachariadis Steve Webb Greg McMullen Shaun Blake

31 Closing Remarks Z/Yen Group Professor Michael Mainelli Executive Chairman, Z/Yen Principal Advisor, Long Finance

32 Vision 1: Flame Disruptive Technological Transformation Has occurred in many industries media, news, televisual travel and hotel reservations telecommunications music retail supply chain FinTech: is finance facing an Uber moment? Cryptocurrency adherents - finance without financial intermediaries

33 Vision 2: Sloth Adaptation Of Current Processes Institutional landscape remains broadly the same as today (six Cs) custodians, central securities depositories, central banks, central counterparties, correspondent banks, commercial banks Continuing evolution towards automated and standardised processes payments and securities processing business as usual not a transformation

34 SWIFT Report Conclusions Ambitious claims for mutual distributed ledgers and lots of initiatives working on proof of concepts Few easy wins: MDLs and associated standardisation of data lowers switching costs and potential for exploiting market power, so there will be resistance from incumbents Honouring the full promise of mutual distributed ledgers (and other FinTech) for existing infrastructure will not come automatically, easily, or cheaply

35 Ivy Theory Of Technology Deployment Learn the rules like a pro, so you can break them like an artist. Pablo Picasso

36 Closing Thoughts Mutual distributed ledgers help communities share information across time and space, less vulnerable to natural monopolies Mutual distributed ledgers provide persistent and permanent contract utilities: safeguarding transactions preserving transactions & data Mutual distributed ledger technology will displace much messaging and shared data functions try one out

37 Long Finance Publications

38 Atomic Ledger Project

39 Outlook Activities From Slips To Smart Contracts, MDL Standards and more The Pamphleteers Blog Long Finance Online Community - be the first to hear about the latest news and events

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