Build Your Ecosystem, Bank of England CBDC and Baktt Payments
Off the Blocks | Vol 106, March 17, 2020
|Mar 17|| 5|
The COVID-19 pandemic is creating a lot of turbulence worldwide and is bigger than anything that I can think about. Most industries are shutting down and companies will see a sharp fall in their business as both supply and demand are disrupted. I am taking this time to help startups tide over the challenges. Join our ecosystem, Velocity, and let us know about your top challenges - with access to 25+ countries, we are in a unique position to create collaborations and unlock value in these turbulent times. Interesting things are still happening, and resilient entrepreneurs will come out stronger on the other side.
Central Bank Digital Currency (CBDC)
Excerpts from the Bank of England discussion paper on the opportunities, challenges, and design of a central bank digital currency.
The Bank of England’s objectives, as set by Parliament, are to maintain monetary and financial stability. To support these objectives, the Bank provides the safest and most trusted form of money to households, businesses and the financial system.
But the way we pay is changing, with use of banknotes falling, and the use of privately issued money and alternative payment methods rising. In this context, the Bank is exploring the concept of Central Bank Digital Currency (CBDC), as are central banks across the world. A Central Bank Digital Currency would be an innovation in both the form of money provided to the public and the payments infrastructure on which payments can be made.
At the moment, the public can hold money issued by the Bank of England (‘central bank money’) in the form of banknotes, but only banks and certain other financial institutions can hold electronic central bank money, in the form of ‘reserves’. A Central Bank Digital Currency (CBDC) would be an electronic form of central bank money that could be used by households and businesses to make payments and store value. This wider access to central bank money could create new opportunities for payments and the way the Bank maintains monetary and financial stability.
CBDC would require the creation of infrastructure so that it can be used to make payments. This infrastructure includes everything from the database on which CBDC is recorded, through to the applications and point‑of‑sale devices that are used to initiate payments. CBDC would offer users another way to pay, which might ultimately be faster and more efficient, with new functionality added over time.
There would be two main elements to any CBDC:
The CBDC itself (ie access to a new form of central bank money) and
The CBDC infrastructure that allows CBDC to be transferred and used for payments.
In this platform model, the Bank would build a fast, highly secure and resilient technology platform — the ‘core ledger’ — which would provide the minimum necessary functionality for CBDC payments. This would serve as the platform on which private sector firms, called Payment Interface Providers, could connect in order to provide customer‑facing CBDC payment services. These firms might also build ‘overlay services’ — additional functionality that is not part of the Bank’s core ledger, but which could be provided as a value‑added service for some, or all, of their users. The Bank could impose standards for these overlay services, alongside wider regulation, to ensure that they were secure, resilient and interoperable with the wider CBDC payment system. The Bank would otherwise allow the private sector to innovate payment services for specific use cases
CBDC would only have benefits if households and businesses hold it and use it to make payments. This means they must switch some of their funds out of banknotes and commercial bank deposits and into central bank money in the form of CBDC, so some disintermediation would be inevitable. But a very large or rapid shift from deposits to CBDC could have significant implications for the amount and cost of credit that the banking sector could provide to the economy and the way the Bank achieves its objectives.
It is clear that the introduction of a Central Bank Digital Currency (CBDC) in the UK would pose both opportunities and challenges for monetary policy, financial stability and payments. Before any decision could be taken on whether to introduce a retail CBDC, the Bank would need to be clear that the net benefit for payments users, the financial system, and society as a whole would outweigh any risks.
The illustrative model of CBDC set out in this paper is intended as a basis for further discussion and research, rather than as a blueprint for a final design of CBDC. Our work so far has highlighted a number of ways that CBDC could be designed to maximise the benefits and mitigate the risks. But there are still many questions that need careful consideration.
The bank invites feedback and suggestions to the proposed structure by June 12, 2020.
Now some significant news from the world this week.
Tech | Old Rivals Oracle and IBM Want Their Blockchains to Talk to Each Other: [Disclosure: Proteum has for long advocated interoperability and an ecosystem-based approach towards widespread adoption of blockchain. Our portfolio company, Vottun, recently integrated with the Oracle blockchain and is interoperable with other protocols.] Rival IT giants IBM and Oracle are working to make their blockchains communicate with each other. The groundbreaking interoperability work is happening on blockchains built using Fabric, Oracle developers said at last week’s Hyperledger Global Forum in Phoenix, Ariz. The Fabric interoperability initiative began just before the first Hyperledger Global Forum in Basel, Switzerland, at the end of 2018. [… Read More at Yahoo Fiannce]
Large IT firms have this history of competition, but it makes sense at technical levels to cooperate, whether it’s formal standards or informal things. Particularly when talking about blockchain, which is an ecosystem play, that’s going to involve multiple parties, so you have to make sure that you can support it across multiple clouds and multiple vendors. You still compete in the field, we will do that every day.
- Mark Rakhmileivich, Senior Director, Oracle
Trading | How Citi and ConsenSys Are Using Blockchain Technology to Help Modernize the Commodity Trading Market: Recently featured in Forbes’s Blockchain 50 list, the Ethereum-based komgo platform is being adopted by a growing number of global banks, commodity traders, energy corporates, and other key players in the trade finance ecosystem who are determined to bring the industry into the 21st century. From digitized letters of credit to tamper-resistant data sharing, the platform is helping to simplify, secure, and standardize operations across the traditional trade finance industry, supporting the use case for blockchain for global trade. [… Read More on Consensys]
Real Estate | Figure Technologies Securitizes $150M of Home Equity Loans on Blockchain: Figure Technologies has completed a long-awaited $150 million securitization of a bundle of home equity lines of credit (HELOCs), billed as the first such transaction in which all aspects of the process were managed on a blockchain. In other words, everything from the origination of the loans to the issuance of the bonds to the collection of borrowers' monthly payments is run on Provenance, Figure’s blockchain, according to the company. This distinguishes the transaction from most enterprise blockchain projects, which have either been demonstrations of the technology rather than live applications or touched just one piece of a complex process. [… Read More on Coindesk]
Energy | Switzerland's Local Blockchain-Based Electricity Market: For one year, 37 households in Walenstadt, Switzerland, have sold solar power in a local blockchain-based electricity market. The participants involved in this pioneering project, the first of its kind in the world, were very positive about their experience. As expected, the system led to a substantial increase in self-consumption and self-generated supply. The participants played an active role in the electricity market but were reluctant to pay more for locally produced power. [… Read More on Off-Grid Energy]
Payments | Baktt Announces New Direct Payment Integration With Starbucks: A major digital asset platform is making it even easier to order that double espresso with an extra shot. Starbucks mobile app users will soon be given the option to pay for their drinks with “Bakkt Cash.” Intercontinental Exchange (ICE), parent company of the Bitcoin derivatives provider, had declared back in August 2018 that the coffee giant was looking at retail applications for crypto payments. Today, Bakkt President Adam White announced the new payment integration with Starbucks on Twitter. [… Read More on CoinTelegraph]
Food delivery giant Foodpanda has launched an ad campaign with adtech firm Moving Walls; nothing unusual in that. But this one claims to be the first blockchain-powered digital out-of-home (OOH) campaign, using the technology to tackle a longstanding issue in the industry: ad fraud. The campaign will encompass 2,750 digital displays operated by three different media owners in Singapore, including Target Media screens in lifts and lobbies, Focus Media’s network of office lobby screens and Moove Media’s in-taxi entertainment screens. Blockchain solutions provider Aqilliz will use the technology to verify the performance of Moving Walls’ and Foodpanda’s digital out-of-home (OOH) campaign “in near real-time,” proving that the ads have been placed when and where they should have been. [… Read More on Decrypt]
Proteum is a global blockchain investment and advisory firm that works with public, private and start-up companies to help them transition into the world of blockchains and decentralized applications. We help companies strategically build their ecosystem and unique capabilities so that they can own and control their future. Velocity, our innovation hub, invests in and accelerates the time to market for startups and emerging ideas.