IBM Developing Blockchain Without Bitcoin for Record-Keeping and Smart Contracts

Bitcoin Magazine
IBM Developing Blockchain Without Bitcoin for Record-Keeping and Smart Contracts

IBM is developing its own version of the blockchain technology and plans to release open-source software within the next few months, The Wall Street Journal reports. The new platform would operate without a native currency like bitcoin and be used to keep track of B2B – business to business, bank to bank, and bank to business – transactions and enforce smart contracts.

The new IBM software platform will permit creating digital contracts that – like bitcoin transactions – would be recorded publicly and securely on a worldwide computer network.

“Blockchain, as a technology, is extremely interesting and intriguing,” said Arvind Krishna, senior vice president and director of IBM Research. ““I want to extend banking to the 3.2 billion people who are going to come into the middle class over the next 15 years. So I need a much lower cost of keeping a ledger. Blockchain offers some intriguing possibilities there.”

Krishna, who previously was general manager of IBM Systems and Technology Group’s Development and Manufacturing organization, leads IBM’s overall technical strategy, overseeing a global organization of approximately 3,000 scientists and technologists located at 12 labs on six continents.

Over the past year, dozens of IBM researchers have been developing their own blockchain-based technology for secure online smart contracts. Krishna said that the project – which is still considered as an experimental project by IBM – could log transactions between banks or international businesses, or even let banks and businesses share the same system of record.

For example, once a Chinese supplier and a U.S. buyer agree that a product had been delivered, a U.S. bank could pay the supplier instantly over the Internet.

The IBM researchers are modifying the original bitcoin ideas to build a blockchain that operates without currency, ensures that contract details remain private and makes it easier for companies to embed business rules into their smart contracts – for example, automatically paying for a package upon delivery.

ExtremeTech notes that this is the first time the concept of blockchain-based smart contracts is backed by a company as large and powerful as IBM. With a track record of successful open-source software solutions, and with its name and reputation behind their blockchain idea, IBM could convince major companies to get on board.

Smart contracts are computer programs that can automatically execute the terms of a contract. In 2001, legendary cryptographer Nick Szabo spoke of smart contracts that solved the problem of trust by being self-executing, and having property embedded with information about who owns it. For example, the key to a car might operate only if the car has been paid for according to the terms of a contract.

Now, Szabo expects emerging “Bitcoin 2.0” smart contracts platforms like Ethereum to have a disruptive impact on financial and legal systems, comparable to that of Bitcoin itself. “[E]ventually more so, since Ethereum’s more flexible and general language can facilitate a much wider variety of commercial and other formal relationships,” said Szabo.

However, according to the scarce information about the IBM project that has been released so far, there seems to be an important difference between Ethereum and the upcoming IBM platform: the concept of “miners” – end users who contribute computing to validate transactions and receive a financial reward in the native crypto-currency carried by the blockchain – would be absent in IBM’s implementation.

Therefore, it appears that IBM wants to go one step beyond the now fashionable concept of permissioned blockchains, where only approved financial operators and governments are allowed to validate transactions, and implement a blockchain without a native crypto-currency, to be used only for record-keeping and smart contracts.

IBM has been doing research on blockchain technology for some time – at CES 2015 it unveiled ADEPT, a system developed in partnership with Samsung that leverages elements of blockchain technology to coordinate a decentralized Internet of Things.  In March, Bitcoin Magazine reported that, according to solid rumors, IBM was developing a digital cash and payment system for major currencies, “sort of a Bitcoin but without the bitcoin,” and discussing the project with a number of central banks, including the Federal Reserve, in view of possible adoption by governments.

The new project described by Krishna is unrelated to ADEPT, but it could be related to the rumors reported in March. It’s evident that, if IBM were to become the preferred partner of governments for next-generation fintech based on blockchain technology, the payoff could be huge. It’s unclear, however, how IMB plans to achieve operational robustness and scalability without crowd-sourcing the operations of the blockchain to properly incentivized miners.

Photo Mr Seb / Flickr (CC)

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Nine Top Global Banks Pool Resources to Fund R3 to Develop Digital Currency Standards

Nine of the largest investment banks are planning to develop common standards for blockchain technology in an effort to broaden its use across financial services, The Financial Times reports.

The banks – Goldman Sachs, JPMorgan, Credit Suisse, Barclays, Commonwealth Bank of Australia, State Street, Royal Bank of Scotland (RBS), BBVA and UBS – will fund a startup called R3, formed by a New York-based group of trading and technology executives.

The banks will jointly contribute several millions of dollars, according to a person familiar with the talks. The funds are expected to go to a forthcoming Series A capital raising for R3.

The project will be led by R3 Founder and Managing Partner David Rutter, who served as CEO of electronic broking at ICAP, the world’s largest interdealer broker, from 2010 to 2013. Prior to ICAP, Rutter was co-owner of Prebon Yamane, last serving as chief executive officer for the Americas.

The R3 team is composed of a highly specialized team of financial services industry veterans, technologists, subject matter experts and new tech entrepreneurs especially focused on rethinking and improving the modern financial markets ecosystem. Rutter recruited another former ICAP trading executive, Nichola Hunter, to join R3. Richard Brown, a technology expert formerly with IBM UK, and Tim Swanson, a U.S.-based cryptocurrencies consultant, have also joined R3.

In addition to developing commercial applications, the project will seek to establish consistent standards and protocols for this emerging technology across the financial industry in order to facilitate broader adoption and gain a network effect, notes an R3 press release. The group will collaborate on research, experimentation, design, and engineering to help advance state-of-the-art enterprise-scale shared ledger solutions to meet banking requirements for security, reliability, performance, scalability and audit.

R3 and its bank partners will establish collaborative joint working groups to lead these efforts, which will leverage the R3 team as well as experts within the partner banks. The group will work within a collaborative lab environment or “sandbox” to test and validate distributed ledger prototypes and protocols.

“This partnership signals a significant commitment by the banks to collaboratively evaluate and apply this emerging technology to the global financial system,” said Rutter. “Our bank partners recognize the promise of distributed ledger technologies and their potential to transform financial market technology platforms where standards must be secure, scalable and adaptable.”

R3 is an innovation firm focused on building and empowering the next generation of global financial services technology, states the company’s website. R3 focuses on applications of cryptographic technology and distributed ledger-based protocols within global financial markets.

“If you’re looking to introduce applications with distributed ledger technologies to improve the financial markets, you can’t have each participant working to a different pattern,” said Christopher Murphy, global co-head of FX, rates and credit at UBS.

R3 is bringing a consensus, which could establish common standards, he said.

“The collaborative model we’ve established with R3 and the other banks is a very effective way to deliver robust shared ledger solutions to the financial services sector,” said Kevin Hanley, director of design at RBS.  “Right now you’re seeing significant money and time being spent on exploration of these technologies in a fractured way that lacks the strategic, coordinated vision so critical to timely success. The R3 model is changing the game.”

“These new technologies could transform how financial transactions are recorded, reconciled and reported – all with additional security, lower error rates and significant cost reductions,” said Hu Liang, senior vice president and head of emerging technologies at State Street. “R3 has the people and approach to drive this effort and increase the likelihood of successfully advancing the new technology in the financial industry.”

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Notable Bitcoin Core Contributors Now Open to Increasing Block-size Limit to 2 or 4MB

Although some individuals in the Bitcoin community believed that nothing would come out of the recent Scaling Bitcoin workshop in Montreal, it seems that some progress was made in finding a compromise between the small-block decentralists and the big-block progressives.

Multiple discussions between some of the key minds in the Bitcoin Core development community took place at the event this past weekend, and it seems the overall goal was to find the key areas of agreement between all of the contributors’ wide-ranging points of view. Rumors were originally swirling around a possible implementation of Adam Back’s 2-4-8 block-size limit increase proposal, but it appears that the area of agreement is more general than that.

A Short-term Bump in the Block-size Limit

Instead of implementing a long-term solution as soon as possible, the majority of Bitcoin Core contributors are interested in a short-term fix. When reaching out to Blockstream co-founder and President Adam Back to clarify some of the rumors that were swirling around the Montreal workshop, the longtime applied cryptographer pointed to a short summary of the discussions between Bitcoin Core contributors posted to the bitcoin-dev mailing list by Bitcoin Core Developer Jeff Garzik. In his summary, Garzik noted:

“Many [are] interested or at least willing to accept a ‘short term bump,’ a hard fork to modify block size limit regime to be cost-based via ‘net-utxo’ rather than a simple static hard limit.  2-4-8 and 17%/year were debated and seemed ‘in range’ with what might work as a short term bump – net after applying the new cost metric.”

The 2-4-8 plan is Adam Back’s simple fallback plan of increasing the block-size limit to 2 megabytes now, 4MB in two years, and 8MB in four years. This is similar to Garzik’s BIP 102, which simply increases the block-size limit to 2MB on November 11, 2015. The 17 percent per year plan is in reference to Bitcoin Core Developer Pieter Wuille’s plan to increase the block-size limit in accordance with technological advancements. The 17 percent per year number is based on data publicly released by Cisco on an annual basis.

Avoiding an Endless Block-size Increase

Blockstream co-founder and Bitcoin Core Contributor Matt Corallo also chimed in in regard to the Scaling Bitcoin discussions on the bitcoin-dev mailing list. He noted that there does not seem to be widespread consensus on the idea of a block size that continues to grow over time. He noted:

“Still, the ‘greatest common denominator’ agreement did not seem to be agreeing to an increase which continues over time, but which instead limits itself to a set, smooth increase for X time and then requires a second hardfork if there is agreement on a need for more blocksize at that point.”

More Work to Be Done in Hong Kong

There are bound to be more discussions before the next Scaling Bitcoin event in Hong Kong, but that’s where real proposals can be presented alongside test results based on the guidelines for scaling outlined in the Montreal event. Although some view a small block-size limit increase as nothing more than “kicking the can down the road,” the reality is that more time is needed to fully develop long-term solutions, such as the Lightning Network or flexcap, that could help Bitcoin scale to millions (or even billions) of users over time. For now, it seems that a simple block-size limit increase to 2MB or 4MB is an area where many notable Bitcoin Core developers and contributors have found some common ground.


Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, RT’s Keiser Report, and many other media outlets. You can follow @kyletorpey on Twitter.

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