Long Finance

Michael Mainelli:

If you read the original Satoshi blockchain paper you can see that there is a political intent

Satoshi took a technique which I call mutual distributed ledgers and combined it to construct a currency

it has gone back and forth between coins and ledgers, and now coins are exciting people again

you want a solid technology for your ledger, now we have gone back to the ideas of Lisp where data can be code

Alderney runs a national timestamping system using one of Z/Yen's very boring ledgers

I like to divide between effiecient/inefficient and no trusted 3rd party vs single trusted 3rd party

the untrusted inefficient corner that bitcoin is in works for a while, but at some point you do need to trust

Ethereum replaced tyranny of the code with tyranny of the majority in response to the DAO problem

Everybody talks governance, but a lot of it is tosh for example, transparency is not a principle, but a tool

there are many issues where there can be too much transparency - for example fleeing a repressive regime

the challenge we have is the changing role of central third parties

mutual distributed ledgers are not that new, but we can apply them more widely

I have never seen a new technology take out an existing technology - even landlines are taking their time to go

the role of governance is to help us through these transitions of technology

there will be an explosion of ledgers with a central 3rd party attached - I think we'll find more use for them

we have a draft for comments, we're going to give it about a week before going to print

Simon Mills:

we looked at the challenge of governance for Mutual Distributed Ledgers, and how rules are enforced

what happens if there is a dispute? Who gets to change the software?

there are 2 main types of MDL - unpermissioned ones, and ones that have a registration need via a KYC process

Public MDLs fit well with a co-operative structure

a state sponsored MDL matches an appointed board, an oligarchy fits a private one

MDLs are often called trustless systems, but trust is essential - you need to trust the code, and transaction durability

trust in an MDL does depend on those who use it and the reputation of the kinds of transactions

the GDPR and the right to be forgotten do constrain how a ledger can be administered

for public MDLs the anonymity of users complicates dispute resolution and enforcement

Public MDLs will need terms of use and dispute resolution - a co-operative fits well with this model

for State Sponsored MDLs, integrating into existing government institutions is key

Estonia has set up the E-Estonia council in the prime ministers office to oversee these kind of MDLs

Private MDLs will have boards mapping onto the controlling institution. A consortium like SWIFT could work

I have not found any accountancy firms that have yet audited an MDL -

we may need a reality auditor to check that the assets on a blockchain do actually exist in the world

Michael Parsons:

we need to bear in mind the disaster of the DAO - $150M in Ether raised, $50M taken by a hacker

a cabal within the Ethereum foundation decided to fork the code to remove the hackers spoils

this means there are now two Ethereums running in parallel, one with the hackers funds

The centre of excellence in MDLs is in London, not in the US

Bob McDowall:

we find it difficult to engage people in public case studies of governance

many people are still very confused on governance and we can help them improve their thinking on it

@mrmainelli mentioned things like the Cadbury report that were layered on the top, but governance is fundamental

Richard Poulden:

cryptocurrency offerings are a big problem for MDLs - these are bad money driving out good

large sums of money are being raised for no reason in ICOs

people are prepared to invest in a purely speculative item becasue of distrust in governments

when the explosion comes in these speculative issues, the fallout will damage MDLs reputation


I wonder how much capital will be burned in high risk engineering projects


can you enshrine a constitution in a formal language that a ledger can understand?

how can you define consent? Can we make liquid democracy more amenable to automation

you need both privacy and reputation, but they are in tension

Dash had a 'tax' on new coins that went to a foundation to fund new ideas - but most money went to 10 people

is it a rigged system, or just a founder effect that gave this kind of plutocracy?

we can't solve this analytically - we need to run experiments to see what actually happens

you need metadata and attribution for recourse when fraud occurs - in the bitcoin world we have none of this

this makes bitcoin incompatible with the existing financial world -

I bridge both worlds - I have a blockchain company and an FCA vehicle too

we are deploying blockchain in IoT devices

we want to blockify existing processes - enshrining the bits that need to be recorded in MDLs

these are permissioned systems, and can map to existing processes more clearly

we still could not find an auditor able to audit a blockchain model

I think legacy is going to eat blockchain in the developed world, but the developing world doesn't have legacy ssytems

what you can do now is federate in a specific and precise way, which wasn't there before

A lot of people come and ask us for a blockchain without actually knowing what they might need it for


the idea that you have to measure and control everything is in the financial services psyche

we have to think about the kinds of decentralised control that we see in open source software


It's good to see a difference between governance and regulation - we're going to see this as ICOs blow up

we're about to see this in Bitcoin with segregated witness coming in

Michael Mainelli:

we're seeing screams as people ask how ICOs are governed and who is in charge of them


some of the ICO offer documents that I have seen are shocking in their blatant disclaiming of all responsibility

doing an ICO out of London should match existing practices, and be as clean as other kinds of money here

we have the possibility of fraud and the possibility of accountability built on a system designed around anonymity

Bob McDowall:

when we began this in April, there was no public visibility of ICOs - now they are being reported in the FT

the whole thing is going nuts, and there will be an ICO crash within 2 years

Richard Poulden:

is there anyone here who trusts a government to manage a currency correctly?


every day we trust government currency to transact

Richard Poulden:

my whoel life is buitl about not trusting governments

in 1971 the dollar was delinked from the gold standard and governments could issue anything they wanted

and any proper bank can front run a government system - you can buy something with money you issue and make money


you expect to realise this in a national currency, not in an asset

Richard Poulden:

I expect the assets to appreciate against all currencies


what happens when a crypto currency starts to use physoical assets to back a currency?

bitcoin denominated excahnges are being designed to buy property

a lot of ICOs aren't worth the paper they're printed on, but 10% or so are interesting

Kevin Marks:

does anyone keep their accounts in bitcoin or other crypto currency? [2 or 3 people say yes]


what stops anyone from issuing new coins? Bitcoin has an exchange rate listed in the paper

ethereum has different monetary policy form bitcoin - it is more inflationary so will eventually devalue

we could disaggregate monetary policy from exchange of value

Bob McDowall:

presumably governments will interfere if the little people get hurt

Michael Parsons:

the people investing in ICOs are the people who hold bitcoin and spending their bitcoin profits in ICOs

it's like fine art - they are a very rarefied market


the value of Van Goghs is based on an actual scarcity - there is no scarcity in bitcoin or ICOs except artificially


the reason Ethereum has value is that they spent time building a great community - that is what is being valued

the merchant and the consumer care less about what the local unit of account is - you can have a portfolio of currencies

what is the natural demand for bitcoin? - it's not settlement it's speculation

Simon Mills:

my decorator was bemoaning that ethereum had dropped in value - we are in a bubble world now


it's going to be five times faster and twice as bad as the dotcom crash

Michael Mainelli:

Galbraith's shoeshine boy is Simon's decorator


the issue of liquidity matters - how much can be realised? is liqudiity part of the governance process

there are over 100,000 companies that take bitcoin for purchase

Michael Parsons:

you can now get a debit card backed by bitcoin that translates into local currency

Michael Mainelli:

the very volatility of these currencies tells you that there is a liquidity problem

liquidity is s slippery concept to tie down

Simon Mills:

an MDLs utility depends on the number of users - if no-one is using it it is worthless


the more people that use it, the more liquid it is, but if that goes down you get mini crashes

as you get more and more currencies you have to get businesses to take them


in the future the term cryptocurrency will be like 'horseless carriage' - they're not like currencies

they stopped being currencies when they became programmable

Governance reminds me of when digitising central exchanges in 2000s - we thought eBay would never work

as small people get burnt it will get more progressively regulated

Michael Mainelli:

our two authors have highlighted the return to a good constitution

accountability is transparency plus predictability in decision making

business doesn't want certainty, but certainty in how the rules will be changed

the process by which tax rules are changed in the UK is capricious - the chancellor pops up surprises

what we need is predictability in how rules can be changed

your ethical obligation is to the market as a whole - you can't say 'my ICO is ok' when most aren't

periods of great innovation are wars or bubbles. If the ICO bubble consumes the whole space we will miss the rest

I'm hoping that ledgers can survive even as ICOs blow up

if we have gold or property backed ICOs, they will need to be audited and protected against theft

at the point we are doing this we have left the distributed ledger a long way behind

the inherent advantages of a distributed ledger are lost if you build too much on top of it

we have other long finance publications at http://www.zyen.com/ on pensions as well as blockchain risk

the volatility of these coins plays against your ability to use them in transactions, even mentally