Blockchain in the context of financial services

In my last post I put together a brief intro of bitcoin and its characteristics. This is how we reached the topic of blockchain which is behind bitcoin. In the context of financial services blockchain is a ledger or in other words it represents historical records of verifiable monetary stake. There is a wonderful demo what blockchain actually looks like on Anders Brownworth’s blog.

Knowing what blockchain is, why is it so useful in financial services?

Trustless exchange – Two parties are able to make an exchange without the oversight or intermediation of a third party, strongly reducing or even eliminating counterparty risk.

User control -users are in control of all their information and transactions e.g. physically may own it and provide a public token as reference to it.

Data integrity and quality – blockchain data is standardised, consistent, and widely available.

Reliability – due to its decentralized nature, blockchain does not have a central point of failure and is better able to withstand malicious attacks. With the reservation/pre-condition that the consensus process cannot be manipulated.

Transparency and immutability – changes to public blockchains are publicly viewable by everybody in the blockchain thus creating transparency, and all transactions cannot be altered or deleted. This is the equivalent of one single source of truth for all.

Ecosystem simplification – putting all transactions on a single public ledger, removes the complications of multiple ledgers and many parallel truths.

Faster transactions – nowadays interbank transactions can take days for clearing and final settlement, especially outside of working hours. Blockchain transactions can reduce transaction times to seconds (or minutes) and are processed 24/7.

Transaction costs – by eliminating  intermediaries and overhead costs for exchanging assets, blockchains have the potential to greatly reduce transaction fees.

Permissions and rich consensus process – a public blockchain is a blockchain that anybody in the world can read, can send transactions to and expect to see them included if they are valid. Also anybody in the world can participate in the consensus process – the process for determining what blocks get added to the chain and what the current state is. Consortium blockchains: a consortium blockchain is a blockchain where the consensus process is controlled by a pre-selected set of nodes; for example, one might imagine a consortium of 10 financial institutions, each of which operates a node and of which 7 must sign every block in order for the block to be valid. Fully private blockchains: a fully private blockchain is a blockchain where write permissions are kept centralized to one organization. Read permissions may be public or restricted to an arbitrary extent.

Original sources for the points above + my own commentary: Deloitte on blockchain technology/Ethereum blog

Blockchain has already been widely applied in financial services. In most cases we talk about proof of concept applications but there are already several exchanges running on blockchains and many other exciting applications (more on them in my next article). Organizations like R3 and Digital Asset Holdings have worked tirelessly to understand the market fit of blockchain and provide software kits which then to a great extent enabled the blockchain revolution.

Some of the most prominent use cases for blockchain are as follows:

  • Identity – blockchain allows to safely store, confirm and distribute personal data which is applicable for KYC.
  • Registry – blockchain could keep track of records of ownership, enable exchange of ownership of physical assets for digital ones, or just store information for public or permissioned access.
  • Smart contracts – blockchain can create and execute autonomously financial contracts e.g. payouts.

My post got pretty lengthy this time so let me stop here. In my next article I would like to share some really interesting real life applications of blockchain.

New year, new topics. Finally a bit about Blockchain

Well well, after months of research and talks with thought leaders and blockchain companies finally gained some confidence to bother you with my thoughts.

When talking about blockchain you cannot skip bitcoin on the way. So what is bitcoin and why is it relevant?

Bitcoin is a form of digital currency, created and held electronically. It is the first example of a growing category of money known as cryptocurrency. A software developer called Satoshi Nakamoto proposed bitcoin and the idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees. Bitcoin was introduced to a cryptography mailing list and released as open-source software in 2009.

The bitcoin protocol – the rules that make bitcoin work – say that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, after the founder of bitcoin).

Source: Coindesk

Bitcoin is an application of blockchain and as such carries several very important characteristics:

It’s decentralized – The bitcoin network isn’t controlled by a central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and decisions are taken based on consensus.

It’s transparent – Bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain.

It’s non-repudiable – When bitcoins are sent, you cannot get them back. Unless the recipient returns them to you.

Some other characteristics are:

Transaction fees are miniscule – If a bank may charge you a EUR 10 fee for international transfers. In the case of Bitcoin we talk cents.

It’s fast – Money transfers arrive just few minutes later.

It’s easy to set up – You can set up a bitcoin address in seconds, no questions asked, and with no fees payable. Now think what it takes with your home bank.

It’s anonymous – Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information.

Source: Coindesk

If this is not enough watch this cool bitcoin video. Something I find really entertaining is the mining industry behind bitcoin – take a look for some spicy details.

So what is blockchain?

Blockchain is a huge general ledger. And it has a killer application in the financial markets. More on the topic in the context of financial markets will follow in my next post in a week time.

This week: a lil teaser about Blockchain and how your Skype account got hacked

Skype spam messagesBlockchain is growing in importance with every day passing by. This is the reason why I plan dedicated posts, not mixed with the rest of my areas of interest. The series of posts that I prepare will follow a simple pattern:

 

  • The history of Blockchain and brief description of the technology
  • Application of Blockchain with financial services in focus
  • Overview of Blockchain projects, startups and ideas

Once I finally get the time to condense all the info I have collected into the planned brief blog posts, you will hear from me. But I do believe this will happen in the next 2 weeks.

Now about Skype. Few weeks ago I woke up late on a Sunday morning to find out that my Skype account has been sending spam messages to my contact list. That kinda hurt my feelings as I tend to have decent security in place and until then used to LOL on all skype accounts that sent me these messages.

It took me about 2 days to ping all my friends, colleagues, business contacts not to click these links (the screenshot above is real, unfortunately). Not surprisingly also changed my password, but I promised to myself to do some research.

There are several ways how the hackers could have guessed my password – brute force attack, getting the answer to my secret question, Microsoft leaking my password (Skype was acquired by MS). My password was a strong one (as usual), same with my secret question. The resulting research showed that other users had password of 15 chars and above, plus special chars, and still got hacked. And after changing their password, some of them got hacked again.

The anatomy of the hacking activity was well described in 2015. The hacker would search for an account with weak password, then break the password and start sending messages to all contacts of this account. The messages contain a seemingly legitimate link e.g. link from Baidu and when the link is clicked the URL will lead to the hackers site, record the username of the user that clicked and then forward to another site e.g. diet site. Thus the attacker knows that a skype ID is valid and in use (so it makes sense to break in and spam further). More than 1 year later Microsoft has still not taken sufficient action to prevent this from happening and this is all that Skype offers on the topic.

In case you have a Microsoft account things do not stop here. Apparently, after the acquisition, all Skype logins were merged into Microsoft’s own login system. This allows for the hackers to log in into an MS account with weak (or hacked) skype credentials, even bypassing enabled 2 factor authentication although it was configured for the initial MS account. Big thanks to Jukka-Pekka for summing it all up. And go check your MS account, you might have a ticking bomb there.

Bottom line, the hack seems to pass even one year after it was reported. A hacked account could send thousands of identical spam messages without the message being automatically blocked or flagged. All this is happening at the end of year 2016!

It is still unclear, how long and seemingly secure passwords have been repeatedly compromised. Looking forward to somebody finding the missing link e.g. if our Skype passwords were leaked.

A bit about ISTA 2016, the killer of Slack and Blockchain

ista crosslend

This November I came back on stage at the ISTA conference 2016. The 2 day event gathered quite a crowd of geeks from the software industry and in particular from Bulgaria. Hosted in the top notch Sofia Event Center and with a great view to the Vitosha Mountain, the event allowed me to dust out after such a long break. In about an hour I walked with the audience through the evolving online consumer behaviour, and how the internet and ecommerce proliferation have opened the door for a whole new myriad of financial services innovations. That eventually brought me to cryptocurrencies, p2p lending and ultimately securitisation services through CrossLend. What struck me is that the hardcore financial language didn’t scare off the audience. I was actually a bit afraid that my topic might be too softy, yet the insights of how we run our IT operations rounded the talk and instigated plenty of questions from the audience. So all in all, a great event, amazing people and in support of a noble cause.

Another thing that I cannot not resist to mention is the lack of excitement in the media about the advance of a Slack killer from Microsoft. And from Facebook. And… no more big players, for now. So the rumours were true. Microsoft released its Teams product and bets it could beat Slack in their own game. Instead of buying Slack, MS goes for its own product for a second time in recent years. And it certainly has a scalable channel to get a sizeable chunk of the collaboration market. Same time there is the not so old mishap in the recent history of the company and namely building an awesome mobile OS, appealing mobile devices and still not succeeding to beat its equally powerful competitors. What failed MS was the lack of apps. What may fail them again is … the lack of apps (Slack has 750 of them). Yet, the main differentiator seems to be video calls capability. Well, yes, you may say we cannot compare Slack with Microsoft due to their vast difference in size. But keep in mind that Facebook has also launched Workplace and has won over 1 000 business clients. This is gonna be a heated one. Agree?

And finally, a bit about Blockchain.  It is officially my new darling to explore and you will probably get fed up with me writing about it again and again. Just saying 🙂

Quick update: Taking on a new challenge in the fintech industry

It has been exciting 2 years at the helm of my startup incubator Stark Founders. Without doubt this has been the most rewarding but also dynamic part of my life. Must admit my previous 3 year tenure at Rocket Internet has prepared me well for this rollercoaster as some of you might know. 🙂

Looking back, I have extended my understanding of technology and business ecosystems, venture capital, business modeling and marketing with focus on B2B/B2C cloud based products, IoT and nearshoring outsourcing. I can say for sure that what I loved the most were the entrepreneurial minded tireless people I met on the way.

Several companies later (including one exit), it was time for a change. Me being me – why not experience a whole new industry? Since few months I am part of the amazing CrossLend team sitting in the futuristic Sony Center at the heart of entrepreneurial Berlin.

So what do we do?

Undoubtedly money is the rocket fuel for business growth. Lending in the form of SME, mortgage or consumer loans is an essential vehicle to maintain consumption of goods and services. CrossLend provides a solution to redefine the lending economy as we know it for both consumers and business. With its unique securitization service it allows to convert loans into bonds and thus gives investors access to asset classes unavailable before while enabling financial institutions to grant more loans.

Unequivocally identified as a truly innovative company, I am really happy to be leading the digital effort at CrossLend. And for those who want to join our amazing technology team feel free to apply through our careers site. We are looking to grow our team of product managers and engineers with financial services background.