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Blockchain Weekly — August 17

This week it’s the post office and DeFi

This may be a truncated blockchain newsletter as the exigencies of being an analyst are great and ponderous these days. But I do want to spend a little more time on a couple of items. (I’ll provide links to some articles I don’t cover in depth so you can still see what caught my eye.)

Fixing the Democratic Process One Block at a Time

The article I shared last week that received the most attention — and it wasn’t even close — was a post on the U.S. Postal Service looking into a blockchain-based mail-in voting solution. (Before you begin wondering if I am going to discuss the USPS, voting, politics, or anything that even brushes lightly against the upcoming U.S. election, let me set your mind at ease: that is never going to happen!) I find it very interesting that the story received so much attention. It makes me wonder if the interest is on blockchain or the mere idea that there might be some technology-based solution to an election that will undoubtedly have a large turnout amidst a pandemic. I suspect it’s a little of both.

I can’t speak to the desire we all have to improve the technology we employ to run our democracies, but I will say that blockchain-based voting is not a new use case. We’ve been discussing it for almost as long as we’ve discussed blockchain for payments. But there are some very compelling arguments that blockchain voting isn’t a great idea, that it solves some simple issues in overly complex ways.

Just reading through the Rube Goldberg methods devised by the USPS for sending out QR codes and storing users’ voter IDs on a blockchain has me shaking my head. I can’t help but ask, “This is better? This is ‘convenient?’” (“Convenience” for voters is one of the justifications for the scheme.) I’m dubious. And I put the odds that such a system could be put in place in the U.S. by Election Day at zero.

This is not to say that I think every voting use case employing blockchain is a non-starter. I think it might be great for certain types of elections. One use case I have thought about often is for Homeowners Associations where a certain number of homeowners must vote for the election to be valid. It seems a pretty straightforward application. And seriously: I freely give permission to anyone who wants to run with this idea. If I can — even indirectly — make HOAs less terrible, I will feel satisfied.

The Ripple Pivot

Another article that received a large amount of attention was the Financial Times piece on Ripple and its attempts to find its place in the payment landscape. The topic is interesting, and it is one that Ripple will have to deal with for some time, but the bigger discussion to me is the entire DeFi or decentralized finance space. This quote caught my eye:

“In one sign that some of the most potentially disruptive new applications are not being attracted to its platform, a wave of experimentation in decentralized financial applications — known as DeFi — has been drawn instead to the Ethereum blockchain.”

And this:

“Mr. Garlinghouse [Ripple’s CEO] blames uncertainty in the US over whether XRP tokens should be regulated as securities for discouraging more companies from using Ripple’s blockchain. He and the company also face a lawsuit over claims they sold unregistered securities.”

DeFi is sparking a rancorous debate. It involves champions of Bitcoin, Ethereum proponents, and skeptics of the entire space who think it’s all nonsense. It can be ugly, but the level of passion makes sense given the stakes — possibly rewiring capital markets, foreign exchange, and more. But it does seem that every “side” in the discussion falls back on a certain amount of hand waving when it comes to legitimate questions about competing visions for decentralized financial services.

Actually, the skeptics don’t do any hand waving so much as they fall back on an argumentum ad ignorantiam fallacy, i.e. “My argument is true because it has never been proven false.” It’s lazy, frankly, and tedious, but the end goal of a skeptic is to play out the clock or gaslight if and when the skeptical position falls apart. That’s why skepticism is so attractive: it’s the easiest position to take.

In the case of Ripple, the admission that there is uncertainty in the regulatory treatment of XRP is refreshing in that it admits everything is not clear cut for Ripple. But it also fails to acknowledge the question of why there is uncertainty. Why are regulators looking at XRP the way they are? How is DeFi so different as to stymie regulators right now? I’m more interested in answering those questions than taking sides right now.

Various and sundry

And here are some other links I shared:

The OCC letter on cryptocurrencies from a couple of weeks ago wasn’t clear enough for some U.S. banks. They are requesting additional guidance.

Michael Casey offered a great post on blockchain’s role in the advancement of AI, and how it can be a part of verifying original content, keeping track of ownership, and determining if it has been altered. (I want to spend more time on that topic at some point.)

Another supply chain use case, this one involving RecycleGo and its use of blockchain in the recycling industry. Plus a good article (including a statement from me!) on blockchain and supply chain in the age of COVID-19.

This is a must-read post on Chainalysis and its efforts to trace terrorist funding using cryptocurrencies. It’s another topic I want to spend more time on in the future.

The Boston Fed is working with MIT’s Digital Currency Lab to explore a “hypothetical CBDC” and look at design choices for the digital currency. Also, the Fed has already been studying a digital currency for some time, according to one of its governors.

And finally, a case study from Hyperledger featuring a pilot by the National Bank of Cambodia using Hyperledger Iroha to address financial inclusion.

Do keep the comments and suggestions coming. I appreciate the feedback.