IBM and Stellar Are Launching Blockchain Banking Across Multiple Countries

The news also comes as an important validation of blockchain technology.

In a breakthrough for payments technology, IBM and a network of banks have begun using digital currency and blockchain software to move money across borders throughout the South Pacific.

The significance of the news, which IBM announced on Monday, is that merchants and consumers will be able to send money to another country in near real-time, accelerating a payments process that typically takes days.

The banking network includes “12 currency corridors” that encompass Australia and New Zealand, as well as smaller countries like Fiji and Tonga. It will reportedly process up to 60 percent of all cross-border payments in the South Pacific’s retail foreign exchange corridors by early next year.

The news also comes as an important validation of blockchain technology, which has long promised enormous efficiencies for the financial sector, but has been slow to move from the concept stage to the real world.

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Blockchain, which relies on a disparate network of computers to create an indelible, tamper-proof record of transactions, is most famously associated with the digital currency bitcoin. But it can be used in many other applications such as tracking shipments or, as in this case, to record a series of cross-border transactions.

As an example, IBM said a farmer in Samoa will soon be able to contract with a buyer in Indonesia, and use the blockchain to record everything from the farmer’s collateral to letters of credit to payment.

“This is the next step in the evolution of blockchain technology. It’s live money moving around a network,” Jesse Lund, IBM’s VP of Blockchain, told Fortune.

Digital Currency is Key

The new blockchain banking process is also notable because the banks will initially rely on a bitcoin-like digital currency, known as Lumens, to facilitate the cross border payments.

Currently, banks arrange such payments by maintaining foreign accounts in a local currency (so-called nostro accounts), and then debiting the accounts as required—a process that is both slow and ties up capital.

Under the new blockchain arrangement, banks will conduct the transactions using Lumens, and then rely on local market makers to convert the Lumens into local fiat currency. The Lumens are created by a non-profit company called Stellar, founded a Jed McCaleb, a well known figure in the payments and crypto-currency world.

Both Stellar and IBM are part of a project called Hyperledger Fabric, which is building open source blockchain tools to support payment infrastructures.

According to Lund, though, the banks use of Stellar’s digital currency is likely to be temporary. He predicts that, in the next year, central banks will begin issuing digital currencies of their own, and that these will become an integral part of blockchain-based money transfers.

The IBM-backed blockchain project comes at a time when other companies are creating efficient new ways to conduct global money transfers. These include BitPesa, which relies on the bitcoin network to replace traditional wire transfers between merchants in Africa, and TransferWise, which provides an inexpensive way for consumers to obtain foreign currencies.

This is part of Fortune’s new initiative, The Ledger, a trusted news source at the intersection of tech and finance. For more on The Ledger, click here.

Tech

Can Blockchain Prevent the Next Equifax? Not So Fast

Blockchain is a marvelous technology. It relies on sophisticated cryptography to create a tamper-proof ledger across multiple computers, eliminating fraud and mistakes. It’s no surprise, then, that pundits are popping up who say using blockchain can avert the next Equifax breach.

Too bad it’s not that easy. While blockchain is poised to transform a lot of things—from shipping to the diamond industry—it can’t fix sloppy data practices at the credit bureaus.

According to David Treat, who leads the blockchain practice at Accenture, the architecture of blockchains is not designed for massive data sets. He explained that, in the case of Equifax, the company’s business practice is about using algorithms to query a massive repository of customer records in order to spit out a credit score.

Related

Apple Holds Product Launch Event At New Campus In Cupertino

While consumers and companies could use a blockchain to access the score, it’s still up to the credit bureaus to protect the underlying pool of personal information. Doing that, says Treat, requires segregating sensitive data and properly encrypting it.

“Their focus should be on the latest encryption and security techniques for hardening and protecting data sources,” he said, adding the same advice applies for large retailers and other institutions sitting on stacks of personal information.

But while blockchain can’t be a substitute for good data hygiene, the technology will have a role in helping individuals exert control over their identity. For example, Accenture and Microsoft are building blockchain tools that will help migrants and refugees access school and medical records. Meanwhile, Treat predicts that blockchains will be useful for age verification—meaning a young person could use a blockchain app instead of a state drivers license to enter a bar.

The bottom line is blockchain may be marvelous but it’s not a magic bullet. Thanks as always for reading—more crypto and cyber news below.

Jeff John Roberts

@jeffjohnroberts

jeff.roberts@fortune.com

Welcome to the Cyber Saturday edition of Data Sheet, Fortune’s daily tech newsletter. You may reach Robert Hackett via Twitter, Cryptocat, Jabber (see OTR fingerprint on my about.me), PGP encrypted email (see public key on my Keybase.io), Wickr, Signal, or however you (securely) prefer. Feedback welcome.

THREATS

Some side hustle. Several websites tied to CBS’s Showtime deployed ad code that forced visitors’ computers to mine crypto-currency on the sly. We’re pretty sure CBS didn’t green-light this particular pilot (a rogue hacker is the most likely culprit) but it’s worth noting Pirate Bay deliberately did the same thing recently. What company will try this next?

Hackers feast on restaurants. Cyber-crooks did a drive-by on drive-thru chain Sonic, and are poised to pig out on millions of stolen credit and debit cards. Meanwhile, hackers also struck Whole Foods—no word if they’ll be charging three times the usual price when they sell the stolen data on the dark web.

You say social media, I say surveillance. It’s long been clear social media isn’t just a way to keep tab on our friends—it’s also a way for advertisers and law enforcement to keep tabs on us. But you can turn up your paranoia dial little further: Homeland Security will begin collecting social media data on all immigrants and naturalized U.S. citizens (!), while the Justice Department is seeking an order for Facebook to disclose who “liked” an anti-Trump page.

Thanks for a job not well done. Equifax explained that CEO Richard Smith “retired” after his company’s giant data debacle. The retirement should be a very pleasant one: a Fortune review of security filings indicate Smith will collect over $ 90 million in the next few years. Meanwhile, the company is trying to make amends with an apology and credit freeze offers that don’t really cut it.

Losing trust in Telegram. Many in crypo-land have long suspected the secure messaging app, Telegram, is compromised by weak encryption and ties to government. Their opinion won’t improve in light of claims by a former Telegram executive that the company has a Moscow office where staff work cheek-by-jowl with Kremlin sympathizers.

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ACCESS GRANTED

A young man died suddenly in Colorado this year, leaving his family the burden of sorting out his estate. Little did they know their loved one had been investing in Bitcoin, the digital currency that cost as little as $ 13 in 2013 and recently climbed as high as $ 5,000.

The grieving family stood to inherit a small fortune—that is, if they could only find and access the cryptocurrency.

—An excerpt from The Ledger, Fortune’s new fin-tech franchise, that looks at the challenges of tracing crypto-currency when someone passes on. If the owners don’t tell anyone about their assets (which may be worth millions), they may be lost forever.

ONE MORE THING

A Stanford psychologist on the “art of avoiding a**holes.” For real. Vox has a fun (and useful) Q&A with the author of The No A**hole Rule, a 2010 guide to keeping jerks out of your company. His new work expands his advice to everyday life, including how to take the wind out of an a**shole’s sails.

Tech

How IBM wants to bring blockchain from Bitcoin to your data center

At its InterConnect conference in Las Vegas this week, IBM is announcing new features for its open source cloud-hosted blockchain service in an attempt to bring this distributed database technology from its initial use of powering Bitcoin to a broader market, including the financial services industry.

Blockchain is a distributed database that maintains a continually growing list of records that can be verified using hashing techniques. Vendors such as IBM and Microsoft are attempting to commercialize it by offering customers a platform for hosting their own implementations. Analysts say the market to do so is just emerging.

IBM has supported blockchain implementations for more than a year, but this week the company is announcing a beta version 1.0 of its service, which is based off the open source Hyperledger Fabric – a Linux Foundation project. It’s available in IBM’s Bluemix Cloud. IBM says Hyperledger can process up to 1,000 transactions per second.

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Computerworld Cloud Computing

IBM’s IoT blockchain service gets ready to set sail

A massive DDOS attack and weaknesses in critical systems have put security concerns front and center in the internet of things. IBM thinks a technology best known from the world of bitcoin could lock down at least one use of IoT.

The company is using blockchain technology to ensure that everything’s in order with IoT transactions. Just as a public blockchain makes bitcoin transactions traceable and verifiable, the private, cloud-based system that IBM will operate for enterprises will verify non-monetary interactions between some devices.

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InfoWorld Cloud Computing

A blockchain ‘smart contract’ could cost investors millions

Investors in a “smart contract” built on the Ethereum blockchain platform may have lost cryptocurrency worth millions of dollars because they missed a loophole in the contract’s fine print.

The contract was written in Ethereum’s Solidity programming language, and the fine print was the code that set out the rules for investing in, operating, and withdrawing from a crowd-sourced venture capital fund called The DAO (The Distributed Autonomous Organization.) .

Ethereum, like other blockchains, is a distributed public ledger, or record of transactions. Where the bitcoin ledger records bitcoin transactions, the Ethereum blockchain records transfers of a cryptocurrency called Ether. But there’s more: Ethereum is also a platform for running smart contracts. Its creator, the Ethereum Foundation, describes smart contracts as “applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.”

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Network World Cloud Computing

IBM offers advice on how to secure blockchain in the cloud

Cloud providers hosting blockchain secure transactions technology should take additional steps to protect their records, IBM says.

IBM’s new framework for securely operating blockchain networks, released Friday, recommends that network operators make it easy to audit their operating environments and use optimized accelerators for hashing — the generation of numbers from strings of text — and the creation of digital signatures to pump up CPU performance. 

Along with the security guidelines, IBM announced new cloud-based blockchain services designed to meet existing regulatory and security requirements. The company has worked with security experts to create cloud services for “tamper-resistant” blockchain networks, it said.

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Computerworld Cloud Computing

Blockchain, its new rival, and their future in the enterprise

Bitcoin and other cryptocurrencies are already starting to shake up the financial services industry. They have also got entrepreneurs thinking about other applications for the blockchain technology that underlies them, including ones that address various processes inside non-financial companies such as contracts, audits and shipping. The digital signatures that certify each transaction and the distributed, write-only online ledger that constitute the core of the blockchain tech have the potential to offer even more security in these and other areas than more traditional approaches used by businesses.

Blockchain isn’t the only game in town either. The Linux Foundation recently revealed that it is leading an open source effort to develop an alternative to bitcoin’s underlying tech. The initiative, which has been dubbed the Open Ledger Project, is being supported by a coalition of leading financial services and tech companies, including Wells Fargo, State Street, the London Stock Exchange Group, Cisco, Intel, VMware and IBM. IBM, which has been a driving force behind the project, is reportedly contributing many thousands of lines of code to it as well as considerable developer resources.

The new kid on the block will have some catching up to do with blockchain, which is already being employed in some innovative ways. Nasdaq OMX, the parent company of the NASDAQ stock exchange, wants to use the tech to oversee trades in the stock of private firms and the Securities and Exchange Commission recently approved a plan by Overstock.com that involves the online retailer issuing stock using blockchain technology. Startups such as Digital Asset Holdings and Coinbase are also looking to profit from growing interest in digital tracking and trading using the new approach.

The firms that gain traction here will get plenty of attention. Investment banking firm Magister Advisors thinks that financial institutions will be spending a total of over $ 1 billion on blockchain-related projects in 2017. And finance is just one industry where the new technology could drive significant change. In the music world, startups such as PeerTracks and Bittunes are aiming to use it to revolutionize the way music is bought and shared. And in the art world, Verisart is harnessing the blockchain to improve the way art is secured and verified.

Looking at enterprise markets, there is a huge opportunity to apply blockchain technology or other variants in any place that involves swaps, trades or exchanges. One of the most obvious applications is in contractual situations where there is a need for proof that various parties are committed to a transaction. Companies such as Block Notary and Bitproof are developing ways to bind digital signatures into the blockchain and some firms are also experimenting with the technology to create escrow contracts that hold money on account until mutual agreement is recorded.

Another area where I expect to see more activity using blockchain technology is in auditing. Deloitte is one of a number of professional services firms that is experimenting with distributed digital ledgers. Here, transactions can be posted into a blockchain, which would apply a timestamp and act as a repository. Typically, auditors only choose a sample from a set of transactions to check; but using the new approach, it may well be possible to verify a much broader range of transactions securely and cost-effectively. There are a lot of regulatory issues still to be ironed out, but the opportunity to provide certainty with significantly less friction is a compelling one.

There is also a big opportunity to use the technology to improve shipping and supply chain management. An example of a startup here is Thingchain, which is applying a bitcoin-inspired cryptosystem to multiple use cases, including proving the provenance of goods and who owns them.

Many companies are still learning about the potential of blockchain technologies, so it may be some time before we see broad adoption beyond finance. But the potential is significant—and not only in the areas that I’ve outlined above. Entrepreneurs are already exploring enterprise applications that cover everything from patent registration to recording the results of boardroom votes. Expect to see more and more businesses joining the blockchain gang in 2016 and beyond.

Martin Giles is a partner at Wing Venture Capital (@Wing_VC). He was previously a journalist with The Economist.

Blockchain, its new rival, and their future in the enterprise originally published by Gigaom, © copyright 2015.

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