There’s a two-stream friction between old and new over blockchain, says Blythe Masters

I can’t attend every conference everywhere, but I have just found an interesting one I missed recently in New York on July 28.  This was American Banker’s Digital Currencies and the Blockchain Conference, previously known as just Digital Currencies.  It’s gained quite a lot of coverage, with a great summary of the whole day over here at Coindesk.

One of the big draws on the day was Blythe Masters’ opening keynote speech. 

Picture sourced from Coindesk

If you don’t know who Blythe Masters is, her LinkedIn career summary gives you a clue:

Blythe Masters is CEO of Digital Asset Holdings, a FinTech company which provides digital technology to enhance settlement and recording of both digital and mainstream financial assets. She is non-executive Chair of the Board of Santander Consumer USA, Inc, a full-service, technology-driven consumer finance company focused on vehicle finance and consumer lending products.

Blythe was previously a senior executive at J.P. Morgan which she left in 2014 after a career spanning 27 years, following the successful sale of the bank’s physical commodities business which she built between 2007 and 2014. From 2012, she was also responsible for Corporate & Investment Bank Regulatory Affairs. She was a member of the Corporate & Investment Bank Operating Committee and previously the firm's Executive Committee. From 2004 to 2007, she was CFO of the Investment Bank. Prior to that, she was head of Global Credit Portfolio and Credit Policy and Strategy. Earlier positions include head of North American Structured Credit Products, co-head of Asset Backed Securitization and head of Global Credit Derivatives Marketing. Blythe joined J.P. Morgan full-time in 1991, after completing a number of internships at the bank dating back to 1987.

Blythe is the former Chair of both the Global Financial Markets Association (GFMA) and the Securities Industry and Financial Markets Association (SIFMA) which represent the common interests of leading financial and capital markets participants and whose missions include building trust and confidence in financial markets. 

In other words, she is someone who has seen the blockchain light.  As the Financial Times puts it: “Blythe Masters, the former JPMorgan executive who helped pioneer credit derivatives in the 1990s, has re-emerged as chief executive of a cryptocurrency start-up.”

So she’s a credible and influential force in the development of blockchain and shared ledgers in the financial system, and is seen as a leading light in this space.

What did she say at the conference?

Well, you can watch her whole speech here (she starts at 13:45):

For the purposes of summarising the big messages, there were a few blog updates and reddit conversations that give you the key insights.  This from Brian Kelly Capital sums it up well:

“What I thought was most interesting about her speech was the emphasis on integrating blockchain into the existing financial system and respected the legacy systems”.  Blythe made clear that this might cause a blockchain friction as “the current financial system works...and has worked for quite some time. Large entities, especially in the highly regulated financial service industry, are loathe to make changes.  This is a point that I think could divide the blockchain community.

“The initial catalyst for Bitcoin was a need/desire for a financial system that was different and separate from the legacy financial system.  The Great Financial Crisis illuminated major break points in the financial system and Bitcoin was developed as a solution.  Therefore using Bitcoin to address the breaking points may cause a divide between those who believe the Bitcoin ecosystem needs to reside outside the legacy system and those who are integrating the technology.

“The bottom line is that integration is now fact.”

Interesting as this means that we have a two stream market.  One stream that wants to make financial markets streamlined for real-time, almost free, shared ledger processing and another stream, the old school, that needs to keep the old ecosystem working whilst the new one tries to take over.  That’s a real friction.

However, even Blythe is viewed as old guard by the libertarian’s.  Take note of this reddit comment:

I love the question at 39:40 about permissioned ledgers, Blythe really has to stretch her words to try and justify the security of going back to trusting third parties with blockchain security.

"When you move away from proof of work to something that has to be ultimately protected by firewalls within a network of trusted counter parties.... Im pretty sure most banks are willing to trust other banks to do the right thing. But im not sure that all of you people trust us."

She does redeem herself a bit @ 46:13 with Chris Derose's question though.

Still, it is quite funny watching these old guards try to clamor their way back into relevancy as they become more obsolete everyday.

It’s worth reading the whole reddit stream if you want to see the real friction between the old and the new.  Meanwhile, if you don’t have the half hour to watch her speech, here’s the whole thing transcribed for posterity by Bitcoin evangelist and Community Director of the Counterparty Foundation, Chris DeRose.

Chris was moderating a panel at the conference and so I’m reproducing his transcript here from American Banker editor Mark Hochstein’s opening words, which provides context for Blythe’s opening words (this is from the video’s opening by Mark at 4:42):

Mark Hochstein:

Today, we're going to be talking about a young technology and a new field of study that has come a long way in a short time. The fact that we rename this conference from Digital Currencies which was the name last year to Digital Currencies and the BlockChain says a lot about how the conversation has evolved. You'll be hearing a lot today about how the space is rapidly maturing, you'll be hearing about commercial uses of distributed ledgers, about applications of this technology that go beyond money into areas like property titles and securities clearing. You'll be hearing about how amateur hour is over, the grownups are coming into the space. You'll be hearing about permission ledgers and private blockchains and I'm sure you'll be hearing about how financial institutions can harness the power of this technology in a compliant fashion. All of this is well and good, any technology that helps banks to serve their customers more efficiently is a welcome innovation worth exploring.

However, I'd like to say just a few words in praise of the thing that started all of this, Bitcoin, and not the blockchain Bitcoin. I'm not going to opine on the price. For all I know, it could go to zero tomorrow. I'm going to talk about how Bitcoin, the idea, has made me a better editor at American Banker. Not because we've been writing about Bitcoin all that much, but because Bitcoin has cast everything that came before it in a new light. How many of you here have heard of the term red pill? For those who haven't, the phrase comes from the movie, The Matrix.

Put simply, a red pill is something that makes you see previously obscured realities and doubt things you might otherwise have taken for granted. I've been with American Banker since 1998 and I always thought I was a savvy, sceptical observer, but I have to admit, Bitcoin red pilled me on the banking system. To borrow another phrase from The Matrix, what if I told you that Bitcoin is what made me realize, two years ago, that real-time payments or the lack thereof in the US banking industry was a major story. If a Bitcoin transaction could be done in 10 minutes and a ripple transaction in seconds, it seems strange that the industry could not agree to move to same-day transfers. American Bankers reporting on the large banks resistance to faster payments won an award in 2013 from the Society of American Business Editors and Writers. More recently, the industry seems to have found religion on faster payments, after some nudging from the Fed.

I suspect that Bitcoin simply by existing and working well enough, played some small role in this C change. What if I told you that Bitcoin is a big part of the reason I saw early on that American Banker should be paying attention to the phenomenon we now call de-risking? Bitcoin startups were one of the first categories of businesses to be treated as pariahs in recent years by the banks, fearful of the compliance risks and the more nebulous reputational risk. Since then, we've seen banks cut off relationships, perhaps reluctantly with everyone from legal marijuana businesses to adult entertainers in some cases, churches. Apparently the tithe means that a church handles a suspicious amount of cash. In the most dramatic example, the de-risking of money transmitters that facilitate transfers to Somalia is feared to be causing a humanitarian crisis in that country, and I will proudly note that American Bankers coverage of the dilemma facing banks in that situation has been nominated for a couple business journalism awards as well. Bitcoin was born of the internet.

On the internet, neutrality is a great virtue. In the financial system, neutrality is an unspeakable sin and discrimination of certain kinds is mandatory. Software does what you tell it to do, it doesn't care whether you're Jamie Dimon or the pizza delivery guy. Financial intermediaries, on the other hand, are increasingly expected by their regulators to not only know their customers but also their customers' customers and their customers' customers' customers. They are expected to block transactions to certain countries. They are told by their examiners to manage the reputational risk of doing business with certain perfectly legal industries, which in practice has meant de-risking.

The red pill then goes even deeper. What if I told you that the infamous pseudonymity of Bitcoin was not just a risk to be managed but perhaps a freedom to be protected? Just to be clear, I am a law abiding citizen and I lead a dull suburban life. But I believe that the cryptocurrency community is doing important R&D for a cashless future. I take it as given that physical cash is going to fade away, possibly in our lifetime. This is mostly a good thing. Think of all the transactions that don't get done because someone didn't have exact change.

Think of the cost of armoured trucks. But I believe that there needs to be some place in the future for anonymous financial transactions, at least on the low end. If all our everyday transactions are catalogued in databases and link to our identities, the implications are chilling. I recognize that there are nasty people out there who are using cloaking tools to do terrible things. And there was a very good story in the New York Times over the weekend about these ransom rings that are using at Bitcoin because of the difficult to trace nature of it. But I don't accept the claim that only criminals have a use for this.

For every bag of bills that is used to pay a ransom, there are countless individuals who use small amounts of cash to pay for perfectly harmless purchases that they just rather not have anyone know about. It could be a home pregnancy test kit or a pack of cigarettes. Think of all cash transactions you've done throughout your life. Would you want every single one of those, no matter how small, on file somewhere and tied to your name just in case the government needs it later? At the very least, the industry and this country should be having a candid and open debate right now about financial privacy, and I believe it should be informed by the public conversation about the Snowden revelations and the Fourth Amendment. It's questionable whether Bitcoin as it stands is compatible with existing regulations, and that's true of a lot of cryptocurrencies, but what if I told you that maybe just maybe it's the regulations that need to adjust? It stands to reason that money laundering, defined as concealing evidence of criminal activity, is itself a crime. But should it be a crime to cover up the actions that are not themselves illegal simply because doing so may inconvenience law enforcement? I would never have asked myself questions like this, were it not for Bitcoin.

I have no idea how successful Bitcoin will be in the long-term, but I do know that the red pill will never wear off. While recognizing the reality of regulation, I would still urge everyone to question the things that don't make sense to them, to challenge the supposedly immutable consensus about cannot, will not ever change. Whether you're a banker wearing a suit or a technologist in cargo shorts, let's all take the red pill together. So that's enough of my spiel for one day. Now I'd like to introduce our first speaker, Blythe Masters is the CEO of Digital Asset Holdings, a start-up launched in March 2015, which is using digital technology to enhance settlement and recording of digital and mainstream financial assets. She was also recently named the chairman of Santander Consumer USA, which I hope I've pronounced correctly, as a unity of Banco Santander of Spain.

Blythe was previously a senior executive at JPMorgan Chase which she left in 2014 after a career spanning 27 years, following the successful sales of the banks physical commodities business which she built. Ladies and gentlemen, please give a warm welcome to Blythe Masters.

Blythe Masters:

Thank you, Mark. Good morning everyone, and yes, you did pronounce Santander Consumer USA correctly but that's not what I'm going to be talking about today. Interestingly I learned a couple of things from your speech already this morning. As you heard, until relatively recently I was working at JPMorgan Chase after a long career there almost thirty years and towards the end of last year after I sold the business that I was then running for them, I took some time off and had every intention of minding my own business for at least a year.

During that time I undertook a regime in pursuit of greater health and a return to youth. One of the things I started taking was a little red pill. Now I was under the impression that it was a vitamin or maybe had something to do with iron, but it turns out apparently it was something entirely different because I wake up a few months later and find myself CEO of a very small company, a fin-tech start-up, messing around in the distributed ledger Bitcoin space and what a ride it has been. So why on earth would I have done that? Simply put, because I believe that this technology has the potential to truly change the way that the financial world operates in a very profound sense. It offers opportunity to reduce costs, to improve efficiency, to reduce risks and overall provide a better customer service which ultimately is what financial services needs to be all about. Over the years, I was lucky enough in my roles at JPMorgan to have the opportunity to innovate in a number of different areas of business, and in thinking about what I would do next, I really don't think I could have happened upon something more fascinating and more enjoyable than the opportunity to innovate again in a new space that I believe is genuinely going to be game changing.

So first of all, let's talk a little bit about what's the problem. Occasionally you get exposure to technologies that really are great ideas, they're cool but they're looking for problems to solve, and generally when that happens, they don't catch on. They might be cool but they don't have a purpose in life. The thing about distributed ledger technology today is that they're great ideas, the technology is in fact cool and there are some very significant problems to which they can be applied and which can be addressed. At its core, one of the most obvious problems in financial market infrastructure that we see the opportunity to tackle is a simple fact of settlement latency, that's delay in the final transfer of assets which have been committed to change hands but have not yet actually done so. As you know, transactions today operates at warp speed.

We read books about flash boys, we understand about competitive advantages that are measured in nanoseconds or fractions thereof, and yet the back-end processing of financial transactions takes days, or even weeks, or even months. U.S. public equities still operate on a trade day plus three days lag basis. At the other end of the spectrum, syndicated corporate loans which is not a small back water by the way, it's a 2 trillion plus dollar notional market operate on a trade day plus 20 or more days, in other words, by appointment. So why would one believe that infrastructure and back offices in post trade processing which suddenly change having been the way that it is for decades, why would it spontaneously evolve into a new and better state? As I said, a cool technology may not be sufficient catalyst for change; sunk costs, operational complexities, regulatory requirements, all of these make change extremely difficult to effect in financial infrastructure.

But the fact is that financial institutions today are operating in an environment where change is simply put, an imperative, and now there's the real opportunity for technology and technological innovation to actually make a difference. To put this in context, as we all know, going back a few years to 2008, interconnectedness across counterparties and opaqueness in financial markets very nearly brought the world to its knees. In the aftermath of the financial crisis, extensive reforms have been introduced with the intention by and large of reducing systemic risk. Many of these reforms have met their objectives with generally positive results, not all of them. Most notably, the banking industry is today materially less leveraged than it was in 2008. However, these same reforms have also created some new and some different risks.

For example, the mandated central clearing and execution of derivatives and reduced risk and balance sheet capacity of banks have brought about some unintended consequences, including greatest central point of failure risk, concentration of activity and reduced liquidity as you already heard about from Mark. First off, capital requirements have with the result that any instruments that resides on the bank's balance sheet for iota of a second longer than it possibly could is acting as a drain on the ROE of the institution. At the same time, costs associated with operational and regulatory compliance have skyrocketed. Banks are increasingly spending a significant portion of their operational outlays on the generation, dissemination, communication, reconciliation of gigantic quantities of data and it's expensive. Regulators are increasingly focused on the transparency, the speed of reporting, the degree to which assets are properly segregated and the way in which these complex financial institutions and all of their data can be safely resolved in the event of failure. Systemic risk associated with settlement latency and lack of resiliency and infrastructure are sources of risks that not surprisingly, these same regulators are deeply uncomfortable with.

And as a result, they're increasingly putting pressure on firms to tackle these as quickly and in some cases more quickly than the currently enabling technology will realistically permit. Finally and needless to say in this increasingly electronic world, operational resiliency and vulnerability to cyber-attack are critical considerations for any major financial institution and their regulators. Today, the big firms invest heavily in perimeter security arrangements behind which they guard their precious data about you and me. And yet those perimeter security arrangements are increasingly porous it seems, every day we read another story about how they have been compromised. Legacy financial services infrastructure keeps data unencrypted, centralized and generally use hub and spoke models where enormous costs are incurred in transmitting, synchronizing and reconciling data within and between different institutions and it's vulnerable along the way. As speed, complexity, volumes mount, the costs of people, computing, electricity, Carbon, need to grow as does the vulnerability to attack or failure.

So it's in that context that when I had my aha moment thinking about distributed ledger technology or perhaps when I took that little red pill one too many times, I became to believe that this innovation had really very significant implications. So what an earth is a distributed ledger? Well, you're all here to talk about the Bitcoin blockchain and so you've certainly heard of an example of a distributed ledger. There are others and I'll come back to those, but you can think of the broad family of technologies as being innovative, networked databases, pretty simple. They operate according to protocols that are disseminated using open source in an open source fashion whereby generally anyone with the qualifications can independently examine and understand the underlying mathematics. They're decentralized not centralized, meaning that you have a network with different processing points or points of access that can exist in different locations, different time zones, within different legal entities or even just different places within the same legal entity. They're also generally accessible by multiple parties that can each access the same single prime record, golden ledger if you will, providing that they have the adequate credentials.

And this can include regulators, not just financial institutions and their customers. What's also important relative to the old-fashioned hub and spoke model of financial infrastructure is that this environment is generally encrypted. Ledgers are cryptographically secured and they're resilient because if any one point in the network fails, there are other points which are able to pick up the slack. Every participant in the network has a replicated version of a transaction database and you can think of this as being analogous to the way that the internet works today. It goes without saying, that you need to be confident that the truth is in fact the truth when it comes to sharing and replicating databases. In the case of Bitcoin block chain, the ledger represents an incorruptible record of truth because of mass collaboration by different computers that constantly validate that version of the truth.

This process is known as proof of work, whereby computers are playing a game of solving a mathematical puzzle that can only be solved by brute guesswork, something obviously that computers are well situated to do. The success of the Bitcoin block chain in this context results in the reward of a native currency unit, a unit of account otherwise known as a Bitcoin. These can of course be exchanged directly between peers using the Bitcoin network and so this is why when you first learned about this topic, without realizing it, you probably heard first about the excitement regarding new cryptocurrency payment mechanisms as opposed to the underlying distributed ledger technology that enables them. I would venture to suggest that both of those are equally exciting and equally profound developments in their own distinct rights. This technology has far broader implications than merely the application to payments and cryptocurrencies. It permits us to imagine a financial system where costs, risks and inefficiencies, the nature of the ones that I've described, are drastically reduced.

What transactions can be incorruptible recorded in a cryptographically secured manner and where there's no single point of failure. Instead of each entity keeping its own record of events of transactions that it's done with each other entity and each of those working constantly to reconcile that information with each other and through time and to disseminate that information both within their own firms and across legal entities, there's a shared leisure or the opportunity for one on which all participants may access the information pertinent to them. This system is in sync by design, no more reconciliation costs. You kind of have to have lived in financial services to understand the profound implications of that statement. Now, the brochure for today noted that this recent explosion of different cryptocurrencies and protocols has raised a series of fascinating questions. For example, there are debates amongst those who believe that the Bitcoin block chain has some limitations, and indeed, that is correct.

Nothing in life is truly perfect, yet. Proof of work does indeed chew up a lot of electricity and computing resources. But if you are merely prepared to trust the others in your network, you could avoid that spend, goes the debate. Unfettered access demands the need for extraordinary resiliency in the event that bad actors are attempting to penetrate your system, and yet, at the same time, unfettered exposes users to the reputational risk of affiliation with the unknown, the unconscionable act that Mark mentioned earlier. That has been built the case for private or permissioned networks, where the processing parties who participate in maintaining and validating data on the network are limited to known and/or trusted entities, for example, a group of highly regulated banks. And so the idea of a distributed ledger has evolved in the direction of restricted access, lower cost and greater control.

This is of course an anathema for those who envisioned the block chain as the antidote to trust-based systems, and indeed there is a trade-off between the degree of resiliency that permissioned databases can offer in the face of concerted attacks and the degree to which access can be restricted. So thinking carefully about the trade-offs between permissioned versus non-permissioned networks is one of the key debates in the space. It's important to be aware as you think about this that there is more than one distributed ledger technology, not all of them share the same strengths and weaknesses and furthermore, that the thinking in this space is evolving very rapidly. There's no doubt in my mind that there are roles in life for both types of technology. So how can a distributed ledger be used to tackle settlement latency in a mainstream financial market? In short, because such a ledger can be used to embed encrypted data describing a financial asset or indeed, more or less anything of value for that matter. Not just the financial asset but the evidence needed to prove rights to its ownership or title.

Once an asset has been digitized, title transfer can occur in real-time on the distributed database, which then provides an immutable, auditable track record of ownership to the parties that need to know about this. This means that the entire lifecycle of a financial trade including execution, netting, reconciliation can occur at the trade entry level reducing errors, risks, costs and fails. These ledgers also have the capacity to be programmed to do quite sophisticated financial operations where applicable and to do that automatically in a concept otherwise known as smart contracts. So thinking through what I've been talking about here, I think it should be fairly obvious to those of you familiar with financial markets that the potential addressable market for these types of technology are absolutely gigantic. We're talking about markets that generally are measured in the trillions of dollars not the billions or the millions. Equities, derivatives, loans, bonds, the list goes on.

The costs associated with inefficiency and record keeping and reconciliation, settlement, and operations in these markets are equally enormous and this in the context of an industry that is under unprecedented pressure to reduce its operational costs. The opportunity to release scarce balance sheet for financial institutions to reduce costs associated with manually intensive processes and to provide a quicker, better, cheaper service to customers is extremely significant, and this of course is why so many firms in the financial services sector, banks included, are proactively exploring this area. However, in reality, the world is not there yet. In fact, we're a long way from this futuristic scenario where our financial ecosystem operates on distributed and shared ledgers. There are real frictions that exist between the digital world and the world of mainstream financial infrastructure, minor details like the fact that the cash that we use is Fiat cash and resides in bank accounts and not on digital ledgers. There are many good questions that have to be asked and properly answered.

How ready is the technology for mainstream application? Can it really handle the throughput needed to process hundreds of thousands of transaction in very short periods of time, millions of transactions per day? How do we handle the on-boarding and the off-boarding of assets into new systems without destroying their clean title? How do we arrive at appropriate levels of standardization amongst multiple different impacted parties seeking to share and leverage the same information, and how will regulators respond to all of this? It's in their interests to see it done well, it's most certainly not in their interests to see a road wreck. Some firms, including my own, Digital Asset, about which I have spoken very little this morning because this is not the right forum for an advertisement, exist specifically to bridge this gap between existing real-world infrastructure and the new evolving digital marketplace. Financial markets are regulated heavily for very good reasons. Distributed ledgers have the power, used correctly, to improve transparency for all participants including regulators and to allow existing firms to do a better job of what they already have to do today. The functions associated with tracking, reconciling, auditing enormous amounts of data are not going to be disintermediated away. They have to continue to exist, they just need to be done more efficiently and at lower cost and with fewer errors.

So in order to progress this vision of a world that is based on digital technology, we need to be communicating with the existing legacy of financial infrastructure in order to start building those bridges between the old world and the new. It's important that we are respectful of that existing infrastructure because it works today, to a degree, and it has to work. It involves very significant risks if you disrupt it and there is no one better than the banking community to understand that point. The legal framework that surrounds the way the financial markets work has not yet evolved to fully recognize the opportunities and the risks associated with digital assets, and that needs to evolve in order to achieve this transition. But building those bridges is how we are going to evolve to a more digitized and a more efficient system. I'm completely convinced that these distributed ledgers databases will be a feature of the future and it will happen simply because it's in the best interests of absolutely everyone for that to occur.

It's going to be hard, it's going to take a while and it may involve more cost in the long term, in the short-term than it saves in the long-term but it is going to happen. We won't get there overnight but it is underway. There are experiments going on in every corner of the globe with every major financial institution, with startups and gigantic technology companies involved alongside each other, working together in ways that actually is relatively unusual relative to recent history. So just like the internet in "the early 1990's", this distributed ledger technology, the internet of money, the internet of value, has the potential to be highly disruptive of certain business models. But just like the internet, in "the early 1990's", it also has the potential to be highly empowering of others. Distributed ledgers are going to change the way that the financial ecosystem works.

How seriously should you take this, about as seriously as you should have taken the internet in "the early 1990's"? With that, I'll pause with my formal remarks and if there are any questions, we have, it looks about five to six minutes left. Happy to take question, as long as they're not about red pills. Hi, good morning. Ingrid from Morgan Stanley. Question for you based on what you know of course, given your long history in financial services, what you know of the technology and how slowly certain things change, do you have a sense of timing of how long will this take to integrate? Yeah, I do and the good news is I'm gonna give you such a nuanced answer that I can't be wrong. I have learned that trick over the years. I think the important thing to know is it's starting now, okay. So the amount of work that is underway, experimental and otherwise, is really very significant, involves a lot of money, a lot of people, and a lot of focus from some of the most sophisticated financial institutions on the planet, not to mention some of the most gifted developers in the world who don't necessary like to feel that they're aiding financial institutions of the planet but nonetheless have managed to do that somewhat against their original best intentions. I would say that given the nature of the infrastructure as it exists today, the incumbent motivations, the sunk costs, the gigantic nature of some of the markets we're talking about, it would be unrealistic to expect anything approaching a full revolution in less than a decade but the process is going to be gradual and incremental and what we're already seeing today is people identifying and ring-fencing subsets of broader asset classes to point which can be safely circled off, tackled in isolation, run in parallel in order for experimentation and understanding of the challenges and opportunities of this technology.

We're seeing that happen already. There's also an entirely spectrum of financial market structures that lend themselves differently to the deployment of these technologies. There are some markets, public equities markets for example with gigantic existing infrastructure, highly centralized regimes, centralized exchanges, clearing and custodial entities, central securities depositories, layers and layers of intermediaries, brokers, custodial agents, etc. where there's enormous challenge in taking and lifting and dropping such a complex ecosystem from where we are today to where we could imagine all of those different entities living on one single distributed ledger. By contrast, there are other markets which don't have anything like that degree of centralization and integration so think of the securitization markets or any of the market with relatively paper heavy, documentation heavy, ..

. types of underlying asset ranging from syndicated loans to commercial real estate, so on and so forth and so you're already seeing different levels of experimentation going on in different asset classes depending on the features of those and it makes complete sense that people would try to identify those areas which are manageable in scope, manageable in transaction, volume, throughput and frequency, manageable in terms of existing market structure and working to advance those use cases first and that's very much what we're seeing. So it's starting now, it's underway. I think there really are very few major firms that aren't focusing very significantly on this and I think those that aren't are at risk of being left behind. There's a question over here if there's a mic. Oh, there.

Okay. Thank you so much for talking. You were talking earlier about how doing things on the public block chain known as Bitcoin exposes you to some risk because of the ability of unknown actors to play on that blockchain. I think that was kind of a recasting of what you were saying, correct it if it's wrong but my question is on a permissioned ledger, do you believe that you're exposed to less risk as a banking entity and how, in particular, your team is working with permissioned ledgers. How are you guys dealing with the risk of settling on permissioned ledgers as opposed to like the Bitcoin blockchain? So I think what I, what I said was that there is the potential for the reputational risk associated with being unable to identify who are entities that you may have created a transactional dependency on in using a purely public blockchain so I wasn't referring necessarily to the risk that you might trade with someone that you don't know. There are ways to prevent that from happening, but rather that you might create a dependency on transaction processes that are less directly known to you or under your control than you're accustomed to when you call up Amazon Web Services and you have a real contract and someone to interact with directly and thereby able to complete your key process satisfactorily from the point of view of an interested regulator. It really, in terms of what the right choice of an alternative ledger protocol involves depends on the use case. It depends on the nature of the asset class, the application, your institution, your needs. In the case of my particular company, as you know we recently acquired Hyperledger which is a non-Bitcoin blockchain protocol and in fact, developed our earliest and some of our current working protocols on the Bitcoin blockchain so I think it would be wrong to say that we're agnostic as to the underlying protocol.

That would suggest that we're unopinionated. That's probably not quite right, I would say that we spend a significant amount of time working with clients to think through the alternatives of pros and cons of using something that is permissioned versus unpermissioned, what are the vulnerabilities from a resiliency point of view, what do you give up if you move away fully from a high degree of proof of work required in favour of something that ultimately needs to be protected by firewalls and within a network of trusted counterparties where ultimately the question is, I'm pretty sure that most banks are willing to trust that other similarly situated banks want to do the right thing but I'm not sure that all of us, all of you I should say . . . you can take the girl out of JPMorgan but you can't take JPMorgan out of the girl. All of you are probably not willing to take it on trust that all of you are able to be sure that you're not under the influence of some malicious actor that has compromised your infrastructure.

So these are complicated, serious, to Mark's expression, grown-up discussions that need to be had in an unemotional fashion. They're about choices of balancing risk and reward, they're about technology, performance, resiliency. They involve regulators and that's how we think about these topics as we navigate those quite complex decisions which generally lead you in different directions depending on the use case that you're contemplating Hi, Chris ... .

Thanks for your talk. I've heard you use the analogy of the internet back in "the '90s" and back in "the '90s" we were looking at the internet and we were seeing email, we were seeing news, maybe and a few other things. The roadmap for the distributed ledger in financial services, where do you think it's going to have its first material impact and what are the signs we should be looking for to see that that adoption is actually taking place? So if you define material as being applied to large dollar values or large values of transactions, my guess is that it's going to be in post-trade processing rather than payments or other applications of securities, derivatives, financial instruments let's call it, a little broader perhaps than just securities and the reason why, well the wholesale markets, they are gigantic numbers, they do have serious, serious challenges today. The costs associated with processing those businesses are rendering those businesses essentially uneconomic, given the current cost of bank capital And will you need to have a central CSD for example, to take on that challenge or can the banks do it independently? There are various paths in that direction but certainly I would venture to offer the fact that the CSD's are in a unique position to address that question of on-boarding and off-boarding, on-ramping and off-ramping of assets in order to avoid contaminating clean title and running afoul of the law. Bear in mind that CSD's for example in this country enjoy a very privileged position in the law which you all know and understand. I would very much hope and expect to see that a custodians, clearing agencies, and others adopt and start to leverage this type of activity and it's absolutely the case that many of them are exploring this with great interest for precisely that reason.

Others may come and displace them, it would be an interesting race as to how that balances out. It's okay if you're just a technology company, sell solutions that help with that and in different directions. Thank you. I think we're out of time, yeah? One more, okay. One more. How do you see permissioned ledgers working in a scenario where say an untrusted bank in Venezuela wishes to transmit value to an American bank? Is that an appropriate tool for that function? Can you say it again? I couldn't hear you.

Sure, how do you see permissioned ledgers working in an environment among untrusted actors? Say a Venezuelan community bank wishes to transmit value to the United States. If you can't . . . the point of a permissioned network is that you must choose members that are trusted so I would say in that example would be a good example of a use case where that would work. Would Bitcoin work for that scenario? Absolutely.

Okay. I'm absolutely not making claims that the Bitcoin blockchain serves no useful purpose in life. That's absolutely not what I believe nor what I intended to convey. I got the thumbs up from a hardcore guy there. Okay, thank you.

Thanks to Lisa Gansky for alerting me to this conference in the first instance.