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© 2016 CME Group. All rights reserved.
The Digitization of Everything: Blockchain Technologies and Beyond
Sandra Ro, Executive Director, Digitization Lead
CME Group
Twitter: @srolondon
Central Bank of Brazil – Policy Panel: Financial Innovation & Technology
12 August 2016
© 2016 CME Group. All rights reserved.
I. Why the Hype? (the Hope)
Financial Services & Blockchain Technologies
II. So What? (the Reality)
CME Group’s Digitization Approach
III. What is Potentially Next? 2016 and Beyond
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2016: Blockchain Applications in Early Development
Food Supply Chain
Management
Banking for the
unbanked
Digital rights and
ownership
Healthcare
Provenance of
commodities
Decentralized
autonomous
organizations
(DAOs)
Land Registry
Financial
trading and
post trade
services
Digital assets
and currencies
Cybersecurity and terrorism
surveillance
Regulation and
Law
Identity Data,
information,
any record
keeping
Capital Markets
and Derivatives
© 2015 CME Group. All rights reserved.
Why will Digitization change Financial Services?
Potentially significant cost savings and new opportunities
The annual cost savings potential from digitizing Post Trade services alone is estimated
to be upwards of $15 Billion*.
In addition to potential billions in cost savings, new business models and businesses to
be protected or created. As a result:
… and many have invested over $1B in Blockchain technologies in 2015
Note: Digitization refers to digital technology including but not limited to Blockchain, distributed ledger technology, and other emerging applications like smart
contracts.
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Explosion in Blockchain Companies, Amount of Money
Invested, and Range of Participants in 2015
Note: This is not a comprehensive list
Source: StartupManagement.org
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Potential Strategic Implications across Industries
Source: Let’s Talk Payments
© 2016 CME Group. All rights reserved.
I. Why the Hype? (the Hope)
Financial Services & Blockchain Technologies
II. So What? (the Reality)
CME Group’s Digitization Approach
III. What is Potentially Next? 2016 and Beyond
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© 2016 CME Group. All rights reserved.
Hype vs Reality: Blockchain Hype Cycle
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Source: Bart Suichies, “Why Blockchain must die in 2016”, 21 December 2015, The Medium
https://www.linkedin.com/pulse/why-blockchain-must-die-2016-bart-suichies
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Hype vs Reality: Testing Blockchains in the Real World
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Sources: Bart Suichies, “Why Blockchain must die in 2016”, 21 December 2015, The Medium
https://www.linkedin.com/pulse/why-blockchain-must-die-2016-bart-suichies
based on Gideon Greenspan, CEO Multichain, “Avoiding the pointless blockchain project”, 22 November 2015
http://www.multichain.com/blog/2015/11/avoiding-pointless-blockchain-project/
© 2016 CME Group. All rights reserved.
I. Long Term Vision and Strategy
II. Research, Debate, FinTech Network
III. Proof of Concepts and Projects:
DLT / Blockchain related
Digital Assets / Crypto related
IV. Engagements:
Internal: Crypto / Blockchain education for all employees
External: The Linux Foundation – Hyperledger Project,
Post Trade Distributed Ledger (PTDL) Group,
IOSCO / WFE Blockchain Task Force,
FIX Cryptocurrency and Blockchain Working Group
V. CME Ventures
Independent investment arm of CME Group
Strategic equity investments: Ripple, DAH, DCG
CME Group Digitization: Focused Approach
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Industry Participants are Investing in Blockchain Startups
Company Businesses 2015/2016 Raise Financial Institution Investors
Coinbase Bitcoin wallet, merchant
processing. and BTC exchange
$106m to-date
$75m in Jan.2015 NYSE, BBVA Ventures
Circle Bitcoin payments
$136m total to date
$50m in Apr. 2015
$60m in Jun 2016
Goldman Sachs, IDG China
Ripple International payments and
settlement $32m in May 2015
CME Ventures, Santander
Innoventures, Google Ventures,
(SBI)
Chain Private and public blockchain
solutions
$43.7m to-date
$30m in Sept. 2015
Nasdaq, Capital One, Fiserv, Visa,
Citi Ventures, Orange
Digital Currency Group Digital currency and blockchain
portfolio
$28m in Sept 2015
$10m (tbc) in Apr
2016
CME Ventures, Mastercard, CIBC,
NY Life, Transamerica Ventures,
OMERS Ventures
Digital Asset Holdings Private blockchain solutions $62m in Jan 2016
JPMorgan, CME Ventures, ASX, GS,
ICAP, Santander, PNC, BNPP, ABN,
Deustche Borse, DTCC, Citi
Blockstream Interconnectivity between
blockchains and ledgers
$76m to date
$55m in Feb 2016 AXA Ventures
21 Inc. Embeddable bitcoin mining chip $121m to date
$116m in Mar 2015 Qualcomm Ventures
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CME Ventures’ publicly announced investments are highlighted in green.
http://www.cmegroup.com/cme-ventures.html
© 2016 CME Group. All rights reserved.
I. Why the Hype? (the Hope)
Financial Services & Blockchain Technologies
II. So What? (the Reality)
CME Group’s Digitization Approach
III. What is Potentially Next? 2016 and Beyond
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© 2016 CME Group. All rights reserved.
• Technology does NOT live up to the potential promise
oScalability issues
oUse cases do not generate efficient processes and cost savings
oSecurity concerns
oTransaction anonymity and privacy
• Industry standards and harmonization attempts fail
• Exogenous technology threats (e.g. quantum computing or new
technology overtakes blockchain)
• Regulatory contradictions or ambiguity across jurisdictions
Risks to Blockchain / Distributed Ledger Adoption
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• Scrutiny of blockchain applications and potential use cases
- As more traditional service providers and fintech firms move to blockchain-based applications, look for regulatory agencies to review and potentially take action:
• first through surveys and informational meetings • targeted investigations / reviews • perhaps even enforcement actions (e.g. CFTC)
• Formation of Industry Consortiums, Attempts at Common Standards, and FinTech M&A
- Many different industry groups have been created in the past year around the world: Post Trade Distributed Ledger (PTDL) Group, The Linux Foundation – Hyperledger Project, R3CEV, and others
- 1Q16 was a very difficult venture capital fundraising environment for fintech firms vs 2015, rebounding in 2Q16
• increased opportunities for small acquisitions and mergers of start ups • fintech start ups “pivoting” from original business models to “blockchain” business models
• Government Agencies, Regulators increased interest in blockchain technologies
- Increasing interest and research by government and regulators regarding impact of blockchain technologies
- Central banks researching digital currencies; Bank of England, FCA, MAS setting up Fintech sandboxes
• Spotlight on terror financing
- In the wake of the terrorist attacks in Paris, there has been an increased focus by governments on the ways terrorists communicate and move money
- UK Treasury released risk assessment or money laundering and terrorist financing, finding that digital currencies present the lowest risk for money laundering
- Report: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/468210/UK_NRA_October_2015_final_web.pdf
- Greater anxiety will bring increased attention to the risks posed by possible terrorist misuse of digital currencies
- However, blockchain / DLT can help track, identify, and prove illicit money flows better than any cash transaction or even wire transfers
4 Trends to Shape 2016 Crypto & Blockchain Regulation
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Thank you Questions?
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Appendix: Additional Reference Information, including
Bitcoin and other Digital Assets
© 2016 CME Group. All rights reserved.
Bitcoin and Blockchain:
https://www.youtube.com/watch?v=YIVAluSL9SU
BBC and Bitcoin and Blockchain:
https://www.youtube.com/watch?v=2ky3mDUoh74
Ethereum Project:
https://www.youtube.com/user/ethereumproject
and many more videos on youtube
Reference: Bitcoin, Blockchain, Ethereum Videos
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• A collaborative effort created to advance blockchain technology by identifying and
addressing important features and currently missing requirements
• Goal to create a cross-industry open standard for distributed ledgers so virtually
any digital exchange with value, such as real estate contracts, energy trades,
marriage licenses, etc. can securely and cost-effectively be tracked and traded
• Announced 30 Founding Members and code proposals on February 9th
- Members include CME Group, Deutsche Borse, Digital Asset Holdings, Hitachi, IBM, Intel, JP Morgan,
Red Hat, R3, and Wells Fargo
• Further announcement of new members to date: 44 institutions in total
• https://www.hyperledger.org/
The Linux Foundation - Hyperledger Project
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• A focused initiative launched by global banks, clearing houses and exchanges to
focus on implications of DLT on post-trade financial services, particularly on
regulatory impact
• PTDL is formalising as a group under transparent governance and organisational
structure in the coming weeks
• Public announcement: May 3rd
- http://www.coindesk.com/ptdl-group-37-members-post-trade-ledgers/
• 45+ global, institutional members and external advisors:
- Organising committee members are: LSE Group, HSBC, UniCredit, Euroclear, State St, and CME
Group
- Membership is unique as it includes the top global infrastructure players as well as regulators in DLT
dialogues across continents, not just USA, UK
- UK regulators as well as other regulators are ‘observing’ members
- Ernst & Young, Norton Rose Fulbright, and Citigate Dewe Rogerson as external advisors
The Post Trade Distributed Ledger (PTDL) Group
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Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of
a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders
should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one
trade because they cannot expect to profit on every trade. All references to options refer to options on futures.
Swaps trading is not suitable for all investors, involves the risk of loss and should only be undertaken by investors who are ECPs within the
meaning of section 1(a)12 of the Commodity Exchange Act. Swaps are a leveraged investment, and because only a percentage of a contract’s
value is required to trade, it is possible to lose more than the amount of money deposited for a swaps position. Therefore, traders should only use
funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because
they cannot expect to profit on every trade.
Any research views expressed are those of the individual author and do not necessarily represent the views of the CME Group or its affiliates.
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not be considered investment advice or the results of actual market experience.
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